July 13, 2008

Politics of the Carbon Tax

"They don't shoot at dead ducks."
Bruce Erickson

I can't recall Bruce Erickson ever having anything good to say about the NDP, but one of his favorite quotes applies more than ever to the Campbell Liberals in their attempt to discredit Carole James' "ax the tax" campaign. Criticisms have ranged from "what will you do to replace the carbon tax revenue" to "no one will remember in May 2009"; there have also been suggestions that environmentalists will not like criticism of Campbell's tax.

I have had disagreements with some of the directions the NDP has taken under James' leadership (pay increases, redistribution and affirmative action), but she is dead on with her campaign against the carbon tax. Champions of the tax don't seem to understand that the "price system" is not always fair and, when price is inelastic, prices are not only inefficient as policy tools to control greenhouse gas (GHG) emissions, but they also inflict much collateral damage.

The Campbell government is spending millions of tax dollars on radio ads, TV commercials and two page full-colour newspaper ads week after week. They don't seem to get it. Most folks understand that we need to reduce GHG emissions. What are the best policy options for reaching the agreed-upon goal is the relevant question.

The eight page NDP pamphlet titled "Framework for Real Climate Action" came under attack in a July 3rd Vancouver Sun opinion piece from one of Campbell's consultants, Mark Jaccard. Like some members of the Campbell government, Jaccard claimed that the NDP would implement Denmark's system for pricing carbon. He wrote: "There is the answer. Study the Danish tax, with its impressive carbon dioxide reductions, and you will see what the NDP means by 'axe the tax.'" As you can see by reading the NDP pamphlet, it does not call for the implementation of the Danish system. It simply states: "For example, Denmark reduced emissions by 15 per cent from 1990 to 2005 by using a carbon tax that targets large emitters at source." The focus of the NDP pamphlet is on consultation, which is why its pamphlet concludes:

"Climate change cannot be fought in isolation. Issues like the sustainability of our forests, our food and agriculture, our waters, our energy production and our health and education are intricately linked."

"That is why Carole James and New Democrat MLAs have been out talking with British Columbians about the issues that matter to them. The Framework for Real Climate Action is another opportunity for us to hear from you."

In contrast to the NDP's consultative approach, Campbell wants to be first with the most - the first carbon tax in North America with the most ambitious targets for greenhouse gas reduction. It is not unusual for the Campbell government to take the approach of fire, ready and maybe aim later if the theme of the week hasn't been forgotten.

If reaction to Dion's "Green Shift Plan" is any indication, the BC NDP won't have to worry about support for Campbell's tax from people like David Suzuki. On July 12th Ipsos-Reid reported that it found the federal Conservatives and Liberals statistically tied at 33% support for the Conservatives and 32% for the Liberals. On July 8th Ipsos-Reid reported that only one in three Canadians claim to know anything about Dion's "Green Shift" and that 60% think that what they've heard about it is a bad idea.

According to government documents, Campbell's carbon tax is expected to raise $338 million in fiscal year 2008-09, $631 million in fiscal year 2009-10, and $880 million in fiscal year 2010-11. The next election is May 12, 2009, six weeks into fiscal year 2009-10, but the tax cuts that balance with the $631 million the carbon tax is expected to raise that fiscal year, take effect January 1, 2009. It would be next to impossible for the NDP to roll back those tax cuts, but if they formed government they could eliminate the carbon tax by October 2009 (exactly half way through the 2009-10 fiscal year) at a cost of $315 million in lost revenue. If the next few months are anything like the previous few years, the "unexpected" surplus will dwarf that loss, making compensating tax increases unnecessary. Elimination of the carbon tax for 2010-11 would create a $880 million hole in expected revenue, but cancellation of tax cuts that are not scheduled to take effect until January 2011, would account for $249 million of the shortfall. The remaining $631 million is probably less than the windfall BC will realize from natural gas royalties.

That gets us to an interesting contradiction in Campbell's green plan. While he is asking BC consumers to cut consumption of fossil fuels in response to his taxes, his government is rolling in cash as a result of royalties from the production of those same fuels. In the February 2008 budget, the Ministry of Finance estimated that natural gas royalties would be $1.165 billion this year, but that estimate was based on a price of $5.65/gigajoule this year, rising to $6.39 in 2010-11. A change of just one $CDN/gigajoule in the price of natural gas has an impact of $275 - $325 million on the annual budget. Natural gas has recently been trading at prices in excess of $10/gigajoule, enough to produce a windfall of more than $1.0 billion for this year's budget. Apparently it is OK to ship fossil fuels offshore and reap billions for the provincial treasury, just so BC families don't use too much of them to heat their homes or get around the province. Greenhouse gases don't recognize borders.

Pundits are probably correct in predicting that Campbell's gas tax won't be the biggest issue for the May 2009 election, but it won't be forgotten. Unlike the dozens of stories that come and go in 24 hours, the carbon tax has put down a bookmark that will be used as a future political reference. The ballot box question might be whether it is time to throw out a government that has grown too arrogant, unaccountable and out-of-touch for the good of BC families.