By Alan Tomalty,
Standards, subsidies and taxes. The bane of the free market. Standards should only be used to prevent injuries or bad health effects. Subsidies should only be used to prop up a company that produces a domestic product that is key to national security. Taxes should only be used as a government income source. Too often however the government uses standards to interfere in the life of all its citizens. At the same time governments subsidize almost everything. Taxes are collected for all sorts of reasons. Ex: liquor and tobacco taxes, estate or inheritance taxes, gift taxes, company asset taxes, and carbon taxes.
It is this last one that irks me the most. Carbon taxes are ridiculous. One of 3 things can happen. 1) The company can refuse to pay them and move out of the country or threaten to move out before they are enacted. In this case everybody loses. 2) The company can pay them and then raise their prices so that with business as usual no emission reduction of CO2 occurs. In this case only the company loses if it also exports its product. The consumers don’t lose because the carbon taxes are supposed to be given back to the public at large. However the general price level of all carbon related goods goes up so that inflation goes up. However since no decrease in CO2 emissions occurs, there was no reason to have the tax in the 1st place. 3) The company can change its source of fuel to a lower carbon entity at a higher cost and pass on its necessary price increase to its customers. The customers have no choice because all the competitors have to do the same thing. In that case there is a reduction in CO2 emissions but since the atmosphere needs more CO2 NOT less, everybody loses.
It is this third scenario that factors into my main point. Even if you believe in AGW(human caused global warming/climate change) , here are the stark facts of trying to do anything about it. PM Trudeau in Canada plans on introducing a tax on the emission of CO2 and all greenhouse gases except water vapour, starting January 1, 2019. B.C. and Alberta are at present, the only provinces that have a carbon tax. The federal price on carbon will harmonize with those and will be forced on any other province that does not implement one by that date.
Canada puts out 1.5 % of world total of CO2 and its level of CO2 emissions is as low as it was 20 years ago. Canada signed on to the Paris agreement on limitation of non condensing greenhouse gas emissions(CO2,methane,…etc) to a cut of 30% from its’ 2005 level of 732 million tons(CO2 equivalent) by the year 2030. That amounts to a promise to cut its’ emissions by ~220 million tons. China puts out 31% of the world total and increased their output 4.1% in 2017 and is on track for an equal 4% increase this year.
In 1991 Norway was the 1st country along with Sweden to introduce a carbon tax, and they have found that their tax was responsible for reducing their increases of emissions by only 2.32% compared to a 0 rate on carbon. However Norway’s CO2 emissions still went up. To top it all off Norway found that the carbon taxes reduced their GDP by 0.06%.
In the Norwegian scheme there were so many exemptions that the effective coverage of the carbon taxes was only 64% of industrial production. The Norwegian price for carbon is around $25 Can per ton. Trudeau has promised to introduce Canada’s carbon tax or CO2 equivalent tax at $20 per ton in 2019 and increase it $10 per ton every year until $50 per ton by the end of 2022. The government of Canada website says that there are ~ 600 industrial reporting facilities that report their CO2 emissions to the government. However they account for only 37% of all CO2 emissions in Canada. The others dont have to report because they are under the legal requirement of 50000 tons per year.
However the differing prices between Norway and Canada will not have any significant effect on the results because there is very little opportunity for any company in Canada in at least 7 of the provinces, to switch to a non CO2 producing fuel because those 7(except Manitoba,B.C. and Quebec) do not have significant hydro power; so the companies will simply pay the tax to stay in business. Theoretically this should not amount to any significant reduction in CO2 because Canada is different from Norway in a fundamental way. In Norway any firm has access to hydro elecricity.
In this 1st phase which was supposed to cover 75% (165 million tons) of the planned reductions until 2022 with the remaining 25% (55 million tons) being applied after that until 2030 and beyond. However since only 37% of total greenhouse gas emissions in Canada are generated by the 620 large greenhouse gas emitters; and only the large ones are required to report them to the Government of Canada; that is only 37% (amount tracked) * 705 (present day emissions) = 260 million tons is the amount tracked. However as a result of industry pressure, the rules have been again changed so that companies will be required to pay tax on only 20% of their emissions with some companies like in the cement and steel industries being required to pay tax on only 10% of their emissions. So let us assume the net overall % will be a 18% requirement. So you have to take 18% of 260 = 47 million tons which is roughly 6.66 % of total emissions of 705 million tons today,subject to tax for the 1st phase. For comparison purposes Ireland achieved a decrease in emissions only after 4 straight years of increased emissions despite a carbon tax. British Columbia despite having a carbon tax since 2008 has not achieved any decrease in CO2 emissions.
The Intergovernmental Panel on Climate Change (IPCC) has said that that the average climate computer model forecasts an increase in temperature of 3C by the end of the century (82 years from now) if the world doesn’t reduce its carbon footprint. The said reduction of temperature goal is 1.5 C by end of century in order to limit the temperature increase to 1.5 C.
Canada has committed to reduce greenhouse gas emmissions per Paris agreement by 2030 of 30%. 30% of 1.5 % = 0.45% of world total
In the 1st phase of reductions which will culminate by 2023, this will instead reduce our greenhouse gas footprint by 6.66 % (if all of the top 600 emitters switch to a non carbon fuel;) instead of 30%. That will leave 93.333 % of the target reduction unchanged for the 2030 target.
However you actually have a 0.0666 reduction of 1.5%(Canada’s % of world total) = 0.1% which will be Canada’s contribution to world total reduction. Don’t forget that carbon trading and a carbon price dont actually guarantee that any reductions will ever occur. If the taxes get paid there is no reduction in emissions.
But if the promised reductions do occur then you multiply by goal of 1.5C so that you have 0.001 * 1.5 = 0.0015 C
That is a reduction of a little over 1 thousandth of a degree C at the end of the next 82 years. And the actual reduction in temperature will be negligble because most emitters will simply pay the tax. It is also a function of how many exemptions and what discount carbon tax %’s are actually determined in the future besides the already announded ones. Even so, since this is the 1st phase only, Canada’s goal in this phase is to cut 75% of 30% of its emissions which = 22.5% . However since only 37% industrial emitters have to report and the effective emissions subject to tax is only 18%; the real number is 18% * 37% = ~ 6.666 % However the difference isnt much because Canada’s emissions have been flat since 2007.
China’s increase last year as per the above is .3 * .041 = 0.0123 or 1.23% of world total
Since Canada’s reduction will be 0.1% (see above) of world total, that means China’s increase for 1 year is 0.0123/ 0.001 = ~ 12 times the amount of Canada’s (total 4 year reduction) for each year if the emissions go lower in Canada to the same degree as the increased price effect after 4 years(assuming that no Canadian emitters actually pay the tax and instead substitute a 0 carbon fuel in their manufacturing process). Don’t forget that Canada’s reduction is only at a maximum effect by 2022 because of the increasing price of $10 per ton per year. In the 1st year 2019 or any other year, the reduction could be the whole amount or any amount depending on how many firms simply pay the tax vs the number that switch to a non carbon or lower carbon fuel source. China has refused to decrease its output and only promised to try to limit their increases by 2030. China is not a developing country because it has 45% of the world’s skyscrapers.
What will all of this cost Canadian companies if all pay the tax?
Price of carbon by 2022 will be $50 per ton by 2022 and at 705 million tons * 37% reporting * 18% effective emmissions subject to tax = 47 million tons . So you have 47 million * $50/ton = 2.35 billion $ Can. However since the carbon tax will start in 2019 at $20 per ton, the yearly taxes will be 2019= 47 million * $20 = $940 million ; 2020= 47 million * $30 = $1.41 billion ; 2021 = 47 million * $40 = $1.88 billion; 2022= 47 million * $50 = $2.35 billion So total cost over 4 year period is $6.58 billion and assuming no other increases, the yearly cost after that will remain at $2.35 billion per year until the 2nd phase starts before 2030. Of course all this assumes that there won’t be further exemptions to the 37% (% of CO2 BY firms that are tracked) * 18% (effective rate subject to tax) of emissions that are reported as of now. However the amount of tax will be less than that because some emitters will switch fuels. Assuming the 2nd phase has the same rules but only collects 1/3 more of the 1st phase; the additional total will add another 33% (25%/75%) and will be $ 3.1255 billion of tax every year until 2030. However that will not meet the Paris commitment to cut emissions by 30%.It will only reduce Canada’s emissions by 6.66 % + 2.22 % = 8.88 % assuming that none of the top 600 emitting firms pay the tax and all switch to a non carbon fuel.
So we are going to have to either tax $6.58 billion in the 1st phase or have the companies spend more to switch to a non carbon fuel, to save 1 thousandth of 1 degree C of world temperature as of the year 2100. The stupid part is that the higher the actual tax collected the more carbon dioxide emissions occur and the less the temperature gets reduced. So in the end , part of industry will pay the tax because switching to a non carbon fuel is impossible ( Ex: industrial kiln) and the rest will switch to a lower carbon source. Either way it raises inflation on all carbon source industries which then insidiously seeps into the prices of everything else in the country. However a last minute appeal for exemptions to some of the smaller of the 596 largest emitters( because of threat of loss of jobs) has convinced Trudeau to make a 3rd category of emitters. In this 3rd category some of those 596 emitters will be completely exempt. This could lower the effective % requirement to as low as 15% which will reduce the cutback of Canada’s CO2 equivalent emissions in the 1st phase to 6.66 * 0.83333 = 5.5%. However since the government has not released the list of completely exempt firms, I have not changed the rest of the numbers. To further add to the confusion as of October 31, 2018 the news is :
There now appears to be 7 lists of largest CO2 emitters (596 firms emit > 50000 tons CO2) 1st list :firms that pay Carbon tax based on 20 % of emissions. 2nd list : firms that pay Carbon tax based on 10 % of emissions. 3rd list: firms that pay $0.91 per ton(NB coal being prime example) . 4th list Firms that pay $0 per ton despite being one of the top 596 emitters. 5th list natural gas stations face carbon taxes on emissions above 370 tonnes/ gigawatt hour, 6th list : oil on emissions above 550 tonnes/gigawatt hour and 7th list :coal above 800 tonnes/gigawatt hour . It is impossible to keep up with all the changes to this policy. The best that can be said is my numbers are based on a 18% effective emission rate. However it seems the number is around 15% now and dropping every day.
After the 1st phase this will still leave Canada short 173 million tons of its Paris commitment to cut by 2030 and Trudeau has said that Canada will meet its commitment by 2030. Well, the only way that would happen is if 37% 0f 732 million = 270 million tons and being 173 million short you divide by 270 million = 64% of the 600 largest emitters in Canada closed down and left the country.
What will this cost each household in Canada per year after the $50/ton price kicks in 2022?
Costs vary from province to province depending on whether there are large hydro resources in the particular province. Estimates are for BC, a low of $603 per household per year to the highest in Nova Scotia at $1120 per year. Minimum of $200 Can/yr and maximum of $475/yr Can for the 1st year. Some estimates are that the carbon tax alone by 2023 of $50/ton could add 1% to the inflation rate. The extra fuel tax of 11 cents per/litre by 2022 will most certainly increase inflation. That would mean a minimum of $500 per person or $1500 per household more per year. Since these costs are because of increased inflation; those costs will be borne by everyone every year going forward.
Also, the federal government has promised to rebate all the money back to consumers. That is delineated in the table called Climate action incentive payments for the 4 dissenting provinces on not implementing their own carbon taxes. Those 4 provinces are Manitoba, New Brunswick, Ontario and Saskatchewan. As an example for an individual in Ontario you will get $154 for the 2019 taxation year and that amount will increase approximately $70 per year until 2022. Well, what is wrong, if we get all our money back anyway, you ask? Well, 7 things are wrong. 1) You have created a federal carbon tax bureaucracy which will never go away. 2) the carbon part of the economy will have been price inflated, thus inflating the whole economy 3) you have given free money to those people that were not using carbon based sources of energy because when you give the money back you have to give it to everybody. 4) As well as everyone getting the same rebate cheque, that cheque will not cover the costs of the increased inflation to those people that are buying and using products from the carbon based side of the economy.The reason is; because of No.3 above, that the people who are not buying and using products from the carbon side of the economy are getting some of that money that would have gone to those that were using products from the carbon side of the economy. In addition, because the rebates will come from the taxes collected on a separate fuel tax, the top 620 emitters that produce fuel will have to pass that cost on to the consumers of that fuel. By 2023 that extra fuel tax will be 11.05 cents more per litre of gasoline,and adiffering amount for other fuels in addition to the taxes already being paid on different fuels. Interestingly there will be no extra taxes on diesel. However the producers of diesel that are within the top 620 emiiters of CO2 will pay the carbon tax per ton of CO2.
So the inflation will go up in 3 different ways. a) taxes paid per ton of CO2 will be passed on to the consumer, b) if emitter switches to more expensive non carbon fuel, the extar costs again will be passed on to the consumer. c) the consumer will pay directly at the pumps,in 2018- 2.21 cents / litre more on gasoline; 2019 – 4.42 cents / litre; 2020- 6.63 cents / litre; 2021- 8.84 cents/ litre; 2022- 11.05 cents/ litre 5) extra costs for each company affected in accounting for the taxes or in switching to a new fuel. 6) If the company is an exporter the export price will either have to be raised, or obtain an exemption on that % of the company product exported, or a new government subsidy created to cover the company’s extra export price. 7) Consumers in the 3 provinces with large hydroelectricity resources will end up paying a lot less than consumers in the other provinces. THIS IS NOT FAIR. The other huge consideration is that since the global warming/climate change subject is a big hoax anyway, the whole exercise will have been a worse than useless activity. 8) The top 620 emitters that don’t pay the carbon taxes and instead switch fuels will still pass this extra cost on the consumer and that inflation won’t be reflected in the rebates that the consumer will get back on their tax return. So in the end the consumer will pay more through the 3 different inflation paths than he/she will get back in rebates.
To top it all off the provincial and federal taxes on fuels amount to a carbon tax already of $160/ton. Furthermore PM Trudeau is pursuing a free trade ageement with China which will result in some of our top 620 CO2 emitters to build facilities in China and by offshoring production, they will be able to escape the carbon taxes completely. This will result in a global increase in CO2 emissions. So the carbon tax will have the opposite effect of its’ goal.
THIS IS ABSOLUTE MADNESS.