Sunday, July 6, 2008

carbon tax II

This graph, stolen from here, is a useful starting point for addressing the question of how the cost of a tax is distributed. Note how both consumers and producers have their surplus reduced by a tax.

Now suppose we adopt Premier Ed Stelmach's plan of a "made in Alberta" approach involving carbon capture. Consumers outside of Alberta no longer help pay, because the burden is either all on Alberta suppliers with Alberta employees (costs they cannot pass on to consumers for competitive reasons because consumers both in and outside the province remain free to buy from non-Alberta suppliers) OR the burden is all on the Alberta taxpayer, with said taxpayer footing the whole bill for an Alberta supplier subsidy.

Stelmach's rhetoric about how a multilateral approach to emissions mitigation would entail a "wealth transfer" to other jurisdictions only makes logical sense if mitigation generates wealth instead of costing it. If that's so, why isn't the private sector already mitigating like mad? Fact is, it COSTS money, which is why Albertans should be trying to bring as many other jurisidictions into any mitigation scheme as possible, instead of pushing them out.

It might be objected here that under a federal (or better yet, a North American or even global) carbon tax, tax revenues would go to the federal government instead of the provincial government. My first response would be that, since both producers and consumers pay, although more of the producer cost would be Albertan because more producers are Albertan, more of the consumer cost would be non-Albertan because more consumers are non-Albertan. My second response would be that the proposals for a multijurisdictional carbon tax have been revenue neutral, whereas Stelmach's carbon capture spending would be a new (and large) line item on government expenditures unassociated with any tax reductions. My third response would be to remind the reader that non-renewable energy is a commodity with a world price, meaning that a shift along the Canadian demand curve will have limited impact with respect to the global demand curve for Alberta's energy, and, to the extent that there would still be an impact, what I am talking about here is relative to a serious provincially mandated carbon capture program, not to the "do nothing" scenario where Alberta becomes an emissions haven.

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