At Home in Hespeler

Who said what again?

Back in 2007 I asked, would you stop driving for 12c a litre?

Elizabeth May thinks you would. I wonder. Hasn’t the price of gas gone up more than 12c a litre this year? What has it stopped you from doing?

I’ve said it before, I’ll say it again. Sixty cents a litre is the starting point for serious reduction. This is just a smooth trick to get carbon taxes in play, they’ll adjust accordingly later. And we all know how hard it is to get governments to adjust down.

The Pembina Institute says British Columbia should increase its trendsetting carbon tax to $200 per tonne of CO2 emissions, equivalent to a 48-cent surcharge in the price of gasoline, if it’s serious about addressing climate change.

Carbon Tax, Economic Fundamentalism, Global Warming, Going... Going... Gone Nuts For The Environment British Columbia, Carbon Tax, Elizabeth May, John Baird, Stephane Dion

A little less than a year ago John Palmer at EclecEcon had a post on the three most important concepts in economics. While some fools were arguing utility theory and the theory of perfect competition, he argued for opportunity cost. Opportunity cost isn’t just basic, econ 101 stuff, it is econ 101, day 1, page 1. It works this way: every time you engage in economic activity (i.e. buy something), you make a choice. I buy this litre of gas or that litre of milk, for instance. It’s so simple, and so often misunderstood.

Why misunderstood? An example: when Stéphane Dion says we want to make polluting pay, that’s opportunity cost. When he says he will return the money to you through the tax system, that’s misunderstanding opportunity cost. Here’s why: if it costs more to heat your house you have two choices: run the furnace less (i.e. turn down the heat) or sacrifice other economic activity to accommodate the extra cost (before the clever among you cite the obvious problem with this case, savings and leisure time both count as “economic activity”). If you’re public policy objective is reducing carbon producing activity, this will effectively work. It is that choice between competing economic activities that will give you incentive to reduce. However, if you give back the extra you took at the thermostat, you have eliminated the incentive. Revenue neutral means, or is intended to mean, opportunity cost = zero. But with zero opportunity cost, there is zero incentive to reduce.

I have cited before others problems with both a carbon tax as it is being sold, and with the concept of revenue neutral: the real level of taxation required to be effective; revenue neutral means neutral for the government; what happens to the tax when it effectively works amd government revenues decline?

But the truth is the main reason revenue neutral is bad policy is opportunity cost. Revenue neutral means zero opportunity cost, and without opportunity cost Dion’s tax shift is simply for the sake of shifting taxes. Or as Stephen Harper would put it, it’s crazy economics.

Carbon Tax, Economic Fundamentalism

Yesterday I stopped at the Petro Canada on the 401 between Cambridge and Guelph, and filled up at $101.9/litre. Over night last night, the price responded to petroleum finishing the day at over $100 /barrel, and by this morning the same gas was running at $109.6. That’s a 7.7¢ litre. If you were looking for a car yesterday, are you looking for a smaller one today? Did you chose not to go somewhere today because of that 7.7¢?

On the same day that gas prices rose 7.7¢, British Columbia has introduced a new carbon tax of 2.4¢/litre of gasoline. It will increase over four years to about 7.2¢/litre. In four years a carbon tax will increase the price of gas by ½¢ less than it rose on it’s own over night last night.

The details of this tax are somewhat complex, with money going back to taxpayers in various plans. It is also according to the BC government, revenue neutral. Revenue neutral is one of those buzz words, and while politicians want you to hear, “your overall taxes will not rise,” they are also, and more importantly saying, “your taxes are not going down.” Even if you decided to save taxes by cutting your carbon use, the carbon tax would necessarily rise to protect the revenue neutral aspect of the tax.

In B.C. however, revenue neutrality is irrelevant. A 7.2¢/litre carbon tax will have no practical effect. I have said it every time I write on this issue, 60¢/litre is the size required of any carbon tax if it is to be effective. Even Elizabeth May, whom I have already stated I think she’s got it wrong, thinks 12¢/litre is what’s required. As I point out in the article the Canadian Centre for Policy Alternatives, a leftist think(?) tank thinks the oil companies are taking 15c a litre excess profit. If the gas companies are taking excess profit more than your carbon tax, how effective will your 7.2¢ carbon tax be?

Look out B.C taxpayers, this is just the beginning.

Carbon Tax, Going... Going... Gone Nuts For The Environment

Who’d of thunk it? But David Frum has, in his newest book Comeback: Conservatism That Can Win Again, come out in favour of a Pigovian Tax. To start, here’s a primer on Arthur C. Pigou, from Terence Corcoran’s NoPigou Club:

Arthur C. Pigou was an early 20th-century British economist, one of the fathers of welfare economics. He believed governments can shape policy for the better by raising taxes on bad things and subsidizing good ones.

Pigovian taxes these days tend to mean a carbon tax. Everybody seem to be on board except, thankfully, our current government. The idea is tempting, replace current taxes with taxes on carbon, thereby allowing you to lower your tax load by conserving energy. Except governments first and foremost protect government revenue. It is simply what they do, as evidenced by Toronto Hydro’s rate hike last March:

…last weeks Toronto hydro rate increases being a classic example what’s wrong with using the tax system. As customers have reduced, Hydro’s profits have decreased, thus they increase rates. The next step is to ask yourself, why should I conserve?

And Terence Corcoran has an article today, Carbon Tax Looks Like Roadkill, suggesting some of the problems with a carbon tax. Chief among them is that nobody is being even remotely honest about how high a carbon tax would have to be to be effective. If I’ve said it once, I’ve said it five or six times, here in Canada sixty cents a litre is the starting point for serious carbon reduction; Corcoran makes a case that it would be more.

So what has come over David Frum? I will quote from an excerpt of his new book, Comeback: Conservatism That Can Win Again, that appeared in the National Post last Friday. I have not found a link to the excerpt, so you’ll have to trust me on the contents, or go buy the book and check it yourself:

Oil is a globally traded commodity. There is a world oil market, one world price. If Iran uses its oil revenues to underwrite a nuclear program, what does it matter whether those revenues are denominated in dollars, euros or yen? If Osama Bin Laden were to seize control of the Saudi state, would it console us that comparatively little of his oil wealth derived from U.S. sources?

While increased North American oil production would be helpful, only substitution and conservation can achieve the important national security goal of reducing the power of unreliable oil suppliers…

There is a simpler and better way to encourage consumers to conserve while denying income to producers: Tax those forms of energy that present political and environmental risks – and exempt those that do not…

That is, surprisingly from David Frum, a Pigovian tax scheme. But I’m still not buying.

Carbon Tax

Remember the caterwauling when John Baird released his Kyoto report, and Elizabeth May said a carbon tax would not need to be anywhere near the $195 a tonne the report said, and Stephan Dion said no carbon tax was necessary, a $20 tonne deposit system was all that was needed?

Liberal Leader Stephan Dion also rejected the $195 figure as excessive, saying that his party proposes a $20-per-tonne “deposit” instead of a tax.

“It’s a deposit that the companies will have to give to the environmental bank — and they will have this money back if they decrease their emissions,” Dion told Question Period co-host Jane Taber.

“It’s like when you have your bottle of Coca-Cola and you bring it back to the grocery store. You get your money back. It’s not a tax.”

Not a tax. That has been Stephan Dion’s line from the start. No Carbon tax.

If that is true, why did Dion’s Industry Critic and co-chair of the Liberal Party of Canada’s election platform committee, Scott Brison, pen an article today in which he says: “It is clear that… governments eventually will put a price on carbon.”

What is a price on carbon, put their by governments, but a carbon tax? Dress it up however you want, but Scott Brison called a carbon tax a sure thing. And since he’s helping write their platform, we must assume it’s now Liberal policy.

Carbon Tax, Global Warming, Going... Going... Gone Nuts For The Environment, Kyoto

Hmm, who’s thought was this one? Quebec is introducing a whopping 0.8c/litre carbon tax effective October 1. According to Claude Bechard, Quebec’s Natural resources Minister, the oil companies should pick up the tax:

We hope at 0.8 cents, the oil companies will be able to absorb it without passing on this royalty to consumers. Especially when you realize that refinery profit margins have gone in the last three, four months from 8 cents a litre to about 19, 20, 22 cents a litre.

Hey, where have I heard that before? Oh, I know, I said it Wednesday. Who would have thought a Quebec cabinet minster is trolling At Home in Hespeler for ideas. Of course, like a politician will, he got what I said all half-assed backwards; at 0.8c, there is no reason for oil companies to absorb the tax, and no way of knowing if they did. Gas in my part of the world jumps around more than 0.8c litre depending on the time of day. It is too small to affect demand, therefore, the gas companies can charge the tax, without affecting their profit. Once a tax is high enough to affect demand, then the oil guys have incentive to absorb the tax, but only then.

If that’s true, why does Mme. Bechard think the oil companies will eat the tax on your behalf?

Well, we count on the goodwill of the gas companies.

Oh, and if the gas companies do absorb the tax, what is the point of the tax. As Bechard himself notes, a carbon tax should be “user pay.” How is getting someone else to pick up your tax user pay? And is not a carbon tax designed to lower usage of carbon releasing goods? How does getting someone else to pick up the carbon tax reduce usage? It doesn’t, and this whole thing is a scam. Bechard could care less about reducing usage, and cares a whole pile about collecting extra revenue, designed as environmentalism.

Carbon Tax, Economic Fundamentalism, Going... Going... Gone Nuts For The Environment, The Media Following My Lead.

Elizabeth May thinks you would. I wonder. Hasn’t the price of gas gone up more than 12c a litre this year? What has it stopped you from doing?

And since there’s all the caterwauling about gas-gouging, ask yourself this. In the current pricing scheme, does demand and supply meet? That is, is there excess of either? And if Elizabeth May’s scheme works, and it’s true that the oil companies are gouging, or taking excess profits, then what’s to stop them absorbing the tax increase? According to lefty think tax Canadian Centre for Policy Alternatives, the oil companies are taking 15c a litre excess profit. If a 12c tax hurts demand, then they could afford to drop prices back until demand returns. Not only could they, it would be good business to do so.

Then what? 25c a litre? 50c? 60c? Gee, I wonder who said that?

I’ve said it before, I’ll say it again. Sixty cents a litre is the starting point for serious reduction. This is just a smooth trick to get carbon taxes in play, they’ll adjust accordingly later. And we all know how hard it is to get governments to adjust down.

Update: As Gerry Nicholls wonders, is this part of the Liberals plan as well. May is, after all, a defacto Liberal candidate.

Updateier: Steve Janke has a post on this. As you can see in the comments, Richard passes on his gas expenses to customers. I pass it on to retailers in the form of non-buying. Janke makes much the same point.

Carbon Tax, Elizabeth May, Going... Going... Gone Nuts For The Environment, Kyoto, pimply minions of bureaucracy

The Environment Ministry last week produced a report, The Cost of Bill C-288 to Canadian Families and Business, suggesting that the cost to Canada of Bill C-288 would be a 6.5% GDP decline (the largest post WWII recession), a doubling of Natural Gas prices, $1.60 litre gasoline, pestilence and locusts – lots of locusts. While the last two may not be in the report, both opposition leaders, Stephane Dion and Elizabeth May, have insinuated as much about the report.

The criticisms are based on the figure of a $195/tonne carbon tax the report says is required. Elizabeth May suggests that realistic figures are more like $30 – $50 tonne. I can only guess she is confusing a carbon tax with carbon credits, which most experts agree need to be in the $40-$50 range. If she thinks $50 would do it, consider that it would increase gas at the pump by 12c litre (not including increase in refinery costs). That’s a long weekend jack-up, not a fix to reduce carbon by 33% (even more laughable is Dion’s $20-per-tonne ‘deposit’ for companies – a 5c litre increase. I get that now between going to and leaving work).

In order to test Dion and May’s theory, I put the numbers to a quick test: $195 tonne gives an at the pumps increase of .47c (1 litre of gasoline produces 2.4 KG of CO2. 1KG – .001 tonne. $195x .001 = .195. 195 x 2.4 = $0.468/litre of gasoline increase.), before refining costs. Considering the carbon tax will be on both sides of the equation, pump and refinery, it is not unreasonable to assume a 60c increase in gas. If the gas numbers are accurate, then I can accept the others without evidence to the contrary.

But is that too much, can we make Kyoto reductions next year with a 12c litre increase. The report says we need to make a 33% total reduction in GHGs. It estimates that 25% of those credits can be bought on international markets, leaving every person and industry to make a 25% cut in their emissions. How much would gas have to increase to make you reduce consumtion by 25%? Twelve cents? Four? Or John Bairds Sixty Cents a litre? (In fairness, Elizabeth Mays number should be closer to 20c.) Same rule for home heating. To cut your Natural Gas use 25%, what does the price have to be?

I have analyzed various reports in the past few months, and 60c a litre on gasoline is the number I expect to see from any serious report. Frankly, I think it’s low – I expect a doubling of gas prices from current prices are required. Sixty cents a litre is the low end of the scale. So I have no trouble accepting the environment ministry’s report.

There are however, various problems that crop up with the report, and Kyoto, when you read this. A carbon tax is expected to produce a significant decline in energy exports, as tar sands production loses some of it’s cost advantage. This energy production has to be made up somewhere, so while Canada is suffering a Kyoto induced recession, someone else is producing the carbon we refused to.

Then there is electricity. Coal will be hit more than Natural Gas, which will be more expensive than hydro. However, Alberta and Ontario are more reliant on coal. While long term “… planned new hydro-electric generation capacity in northern Quebec, Manitoba and Newfoundland and Labrador that together with development of an east-west electricity grid, could dramatically reduce the dependence of Canadian industry and consumers on high GHG-emitting energy sources…” sounds good, how does Ontario and Alberta becoming dependant on Quebec and Newfoundland for hydro affect provincial politics. Does Ontario really want to be beholden to confederations blackmailers? (I know Alberta doesn’t.)

Meanwhile, doubling Natural Gas prices implies much more for dirty electricity generation. A person wonders how high prices would have to go to make new nuclear generation a worthwhile investment? Sooner or later an Ontario Premier will have to consider it.

Further economic activity that can be anticipated, according to the study, is a weakening of the dollar and “effects on monetary policy.” I presume that to mean stimulative effects, i.e. lowering of the interest rate, but as a lower dollar and increased carbon prices are not inflationary, I can’t rule out higher interest rates.

And in the end, how effective would all this be? Consider this statement:

Revenue received from a broad carbon tax could be recycled back through the economy through changes in other tax rates, although at the same time it would be essential to ensure that the government’s overall fiscal situation be kept whole in order to avoid returning to deficit.

Translation: they will give some of the extra tax money back through other tax relief (although not all), however expect tax increases as you decrease usage. You benefit what from cramming yourself into a tiny car, and wearing sweaters to bed in February? Nothing, because that savings will be taxed back to protect government revenues. Now isn’t it funny how Stephan Dion and Elizabeth May never got upset about that bit of sophistry?

And who said that would happen? And what was that quote again? Something about farthings and “pimply minions of bureaucracy?”

Carbon Tax, Global Warming, Kyoto, pimply minions of bureaucracy