Home > Uncategorized > Regulation Better Than Tax: Corcoran

Regulation Better Than Tax: Corcoran

March 27th, 2007

A week and a half ago I looked a T-D bank report called Market Based Solutions to Protect the Economy. In today’s Financial Post Terence Corcoran has a read through it, and comes away very unimpressed.

The report concludes that a carbon tax (or Pigovian Tax, if you prefer) is the best way to reduce carbon emissions, and Corcoran disagrees. Corcoran in fact, makes a somewhat convincing , and surprising, argument that regulation is the way to go, citing success in reducing sulphur emissions as his proof.

I myself, have become less and less convinced that using the tax system is the way to go, 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? The same effect would almost certainly occur if the tax system is used to decrease emissions: as soon as tax revenues decrease due to conservation efforts, the tax rate would go up to make up shortfalls. At that point, the effort to lower emissions stops, as people efforts are not being rewarded (same basic problem occurs with Dalton McGuinty’s Smart Meter program – once everybody is doing their dishes in the middle of the night demand will increase at that time, causing the rate to increase in the middle of the night).

While it is odd reading a free marketeer like Corcoran calling for regulation, it is a worthwhile discussion to have. And he’s right, regulation can promote change without price shocks, and the price shock if government decided to tax the CO2 out of us would be substantial.


Comments are closed.