Not if but how: carbon pricing debate bypasses Saskatchewan's Wall

"If you have a stated goal to reduce greenhouse gas emissions — and Saskatchewan does — the most cost-effective way to do it is carbon pricing. Period," says Chris Ragan, the McGill University economist who acts as the non-partisan commission's chief spokesman.

And unless Saskatchewan abandons its objective, Ragan says he'll keep talking about why the province should go the carbon pricing route.

The commission is an independent, privately funded think-tank with one overriding goal: to start putting a price on pollution while reducing taxation on income, employment, profits and other things Canadians actually want more of.

The commission is comprised of 10 nationally recognized economists and backed by a cross-partisan advisory board that includes the likes of Reform party founder Preston Manning, former Alberta finance minister Jim Dinning, tax specialist Jack Mintz and Suncor CEO Steve Williams.

Ontario says its coming cap-and-trade market will raise $1.9 billion annually. B.C.'s carbon tax generated $1.2 billion in 2013-14 (all returned in tax cuts and rebates). And Alberta is projected to reap north of $3 billion a year from its new carbon tax.

Smart, transparent, rules-based public policy detailing how governments "recycle" those carbon revenues will be the key to public acceptance and approval, argues Ragan.

The report is titled "Choose Wisely" because different provinces should use the revenues in different ways, depending on their circumstances.

"Carbon pricing generates two challenges: the household fairness challenge and the business competitiveness challenge," said Ragan.

"We don't want to shy away from those."

The commission aims to identify the challenges and quantify them. Carbon revenues, whether through a direct carbon tax like B.C.'s or a cap and trade market like Quebec's, can then be used to address those issues.

That still leaves cash in hand, says the report, which can be used to cut corporate or personal taxes, support clean technology, build infrastructure or pay down debt — whatever the government determines is most in the public interest.

And governments should not just dictate their priorities, and leave it at that.

"If you're going to give the money back to households, tell us why," said Ragan.

"If you're going to put the money into clean tech, tell us how you're confident that those investments will be good. If you're going to give the money back to the emissions-intensive industries, tell us why and how much and for how long."

Governments are already spending public dollars on climate change, from disaster assistance to industrial subsidies such as Saskatchewan's public support for carbon capture and storage technology.

Wall, in a post-election scrum Tuesday in Regina, presented a more nuanced view on carbon taxes than in the past.

"We haven't ruled it out ourselves in the long term," Wall said. "A price on carbon, effectively we kind of have one because we're selling CO2 right now to oil companies out of Boundary Dam 3," he said, referring to a carbon capture project.

"But in terms of a broader application of a price, that's possible down the road but it's not right now."

The 13 provinces and territories are currently in a six-month research phase looking at a quartet of broad climate policy measures with the federal government, including carbon pricing.

Ragan, for the record, doesn't buy the argument that Saskatchewan's carbon capture technology actually prices carbon, although he applauds Wall's government for funding the initiative.

He believes the debate over carbon pricing has moved beyond yes or no arguments, as evidenced by the commission's detailed report on what to do with actual new streams of revenue.

"We are talking more about how to do it, rather than whether it should be done at all," said Ragan. "And provinces are actually doing it."

[See also this column below:]

Carbon-tax revenue isn't dirty money

When the topic of carbon taxes comes up, the discussion often splits along two lines that resist intersection. Those on the progressive/liberal end of the political spectrum see it as a quest to save the planet. Those on the conservative side see it as a tax grab.

Why can't it be both?

That's kind of the point of Canada's Ecofiscal Commission, the private group of highly respected Canadian economists and policy experts formed in late 2014 to help the country combine sound environmental policy with sound fiscal policy. The commission released a report on Wednesday that focuses on a very practical aspect of the growing desire among many Canadian provinces to introduce carbon taxes: What should they do with all the money they will make?

"The primary objective of carbon pricing is to reduce greenhouse-gas emissions. But the price is only half the story. Carbon pricing can generate substantial revenue for provincial governments," the commission said in the introduction to the report, which goes on to outline the pros and cons of various ways each province could use that revenue.

But really, would it matter if the primary objective of the tax was, indeed, the revenue? The result would be exactly the same. Either way, a carbon tax raises money for the government while discouraging carbon-intensive activities.

Yet, the revenue bonanza is the elephant in the room for carbontax proponents. It somehow feels dirty that someone should make money off good environmental policies. That's why provinces that have already committed to carbon taxation - think British Columbia and Alberta - have sold their plans as being "revenueneutral" - that all the money being collected will be returned to taxpayers.

In B.C.'s case, its carbon-tax legislation requires that the revenue be offset by corresponding tax reductions elsewhere. Alberta's much looser definition of "revenue-neutral" involves pouring all the proceeds into green technologies and infrastructure, as well as compensating businesses and individuals hurt most by the tax - which isn't revenue-neutral at all, but is still, arguably, a laudable way to recycle those carbon revenues back into the Alberta economy.

But what would be so wrong with a provincial government viewing a carbon tax as a revenue source? Why is that less appropriate than making me pay for government operations out of my personal income, or the profit of my job-creating company, or every time I need to buy something at a store?

Indeed, one could argue that carbon pricing is a superior option for taxation policy. In the case of income and sales taxes, governments are effectively providing a disincentive to positive economic activities that they generally prefer to encourage. A carbon tax, on the other hand, discourages a behaviour that the government actually wants to discourage.

Let's consider Alberta. The Ecofiscal Commission estimates that a carbon tax of $30 a tonne (in line with B.C.'s tax, and the rate planned by Alberta from 2018 onward) would generate nearly $6-billion in revenue (based on 2013 emission levels). For a province with a projected $10-billion budget shortfall this year, that kind of money would come in mighty handy.

It could commit to cutting taxes to offset the take from its carbon levy, but it already has the lowest personal income tax rates in the country, competitive corporate tax rates and no provincial sales tax - one can hardly argue that it needs tax cuts in those areas. And if it wants to use its fiscal policy to target stimulus to grow its struggling economy, then tax cuts might not be the best way to inject those funds.

A survey published Wednesday by ATB Financial showed a sharp increase in the number of Albertans who plan to use this year's tax refund to pay down debt - an indication that in Alberta's current environment of sharply rising unemployment, a windfall from a carbon-linked personal tax cut may very well not trigger a growth-boosting rise in consumer spending.

But if you do have a problem with tax-and-spend government cash grabs, it's legitimate to ask whether the provinces, by and large, really need that extra revenue.

In another report on Wednesday, Canadian Imperial Bank of Commerce economist Royce Mendes argued that with Ottawa ramping up its spending and shouldering deficits to aid the economy, that means the provinces can get away with doing less in the name of stimulus, giving them a chance to rein in their deficits and debts over the next few years.

In the longer run, though, the provinces will face the brunt of the rising health-care and socialservice costs linked to Canada's aging population. Cutting taxes and tightening spending will not, realistically, be their long-term reality.

What's more, years of tax-cutting in Ottawa has, in effect, freed up space for the provinces to increase their tax take, in keeping with their rising share of the services burden in an aging country. A carbon tax, which is desirable on environmental grounds anyway, provides an avenue for provincial governments to do just that. If cleaning up the atmosphere can also help the provinces get over their coming demographic hump, that's not a bad thing; it's two good ones. 

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