Wynne government reveals unintelligent carbon pricing

The press release begins:

To build on the work already underway to fight the effects of climate change, Ontario is laying a foundation to join the biggest carbon market in North America by introducing new legislation today that, if passed, would ensure that proceeds from the province’s cap and trade system are transparently reinvested into green projects and actions that will reduce greenhouse gas pollution.

There’s no shortage of people railing against any tax, but I’m not vehemently opposed to a carbon tax/price. Stéphane Dion launched his appeal for his Green Shift policy during 2008’s election campaign with:

The Liberal Green Shift plan is as powerful as it is simple: We will cut taxes on those things we all want more of such as income, investment and innovation. And we will shift those taxes to what we all want less of: pollution, greenhouse gas emissions and waste. 

I wasn’t opposed to that – I didn’t know it would accomplish much of anything, but a carbon tax instead of a payroll tax, or a beer tax, is not something I would get too worked up about. However, I have written on two objections to a carbon tax: the inability to price externalities, and the funding of thoughtless spending with revenues.

In stating,  “proceeds from the province’s cap and trade system are transparently reinvested into green projects ,” the Wynne government loses my confidence in their scheme.

Carbon taxes shift the tax burden from the richest to the poorest families. Lower and middle income Canadian families spend $5,000 to $8,000 per year on energy. Since most of their energy purchases are not discretionary, this eats up a large portion of their disposable incomes. Wealthy families typically spend $8,000 to $12,000 per year on energy, 30% to 50% of which is discretionary, representing a small share of wealthy-family disposable income.

Every nation that introduced a high energy-tax/emission-tax policy in the early 1990s immediately followed up with increases in income support for poor families. The U.K. now spends more through its official Fuel Poverty program … than it collects in incremental energy tax income and Climate Change Levies combined.

That quote is from an article by Aldyen Donnelly. One does not need to agree with the premise, but Ontario’s government provides no indication they’ve encountered the premise. In another, later, article Donnelly wrote:

  • every nation that implemented major income-to-consumption tax shifts between 1980 and 1999 has been trying to reverse that shift since 2000 or so;

That sticks in my mind, as does the introduction of the HST to Ontario in 2010.

The HST added energy to the provincial portion of the newly harmonized sales tax. I recall talking about the 2010 claims that 600,000 jobs would be created from tax changes to somebody skeptical you could take a chunk out of disposable incomes and drive employment that much higher.

The skeptics were right.

With gasoline and natural gas prices down, I was not surprised to see in yesterday’s budget Sales Tax half a billion dollars above projection despite personal income tax revenues being below expectation.The government ascribed the better-than-expected sales tax haul to other factors – I suspect after they introduce carbon pricing and sales tax revenues drop below expectations, they’ll again explain it away differently.

There is no indication the planners/government considered impacts of increasing carbon costs on either households or the overall economy, but there is an indication that they are ignorant of the issues in the promise that revenues are, “reinvested into green projects and actions that will reduce greenhouse gas pollution.” There will be losers and deficits will rise if there is not plan to address that.

Both opposition parties call guarantees the revenues will be spent on green projects a farce, so there is that reason to be hopeful – but the fear is the government isn’t lying.

No government has made stupider spending decisions on behalf of Ontarians than the Liberal governments of the past 8 years. A couple of recent examples from the industrial wind turbine (IWT) debacle. Last week the IESO added two sites to their reporting, Armow (180 megawatts) and Grand Valley 3 (40 megawatts). Both are in the Southwest zone of the transmission grid – which is one area curtailment of output from IWTs is growing rapidly as the system, even with prices near zero, cannot accommodate any more supply. Those 2 sites added 1 week ago will cost Ontario ratepayers about $2 billion over 25 years. Another 2 sites, Belle River and North Kent, are set to be added in the West zone of the grid – which is also already overcrowded with IWTs of rapidly decreasing value and increasing curtailment. These 2  pending sites are from the Samsung contract that was to kick-start the great renewable future where expensive Ontario contracts would build an industry capable of exporting to the world. Instead the wind tower plant set-up to initially supply  Ontario IWT projects laid off workers this week – with some hope they might return when “projects will resume.” Despite the low value of the Canadian dollar the projects they await are likely Belle River and North Kent, and once those are done so are those jobs – but ratepayers will have another $1.8 billion to pay off for 25 years after the jobs go.

The people who planned Ontario’s electricity disaster are those promising to spend all the cap and trade revenue on green things.

Addendum

I was sent an e-mail containing this link to a submission during the cap-and-trade design period from the Ontario Environment Industry Association (ONEIA). This lobby specifies how cap-and-trade should be resolute in avoiding potential economic benefits of a carbon tax:

The province should clearly and unambiguously allocate 100% of such revenues to measures to reduce carbon emissions and mitigate the effects of climate change. This should include specific measures … to encourage the uptake of new technologies and assist Ontario companies in accessing other markets. Trust in the program will be at risk if stakeholders perceive that such funds, either directly or indirectly, are being used to pay for previous spending commitments on infrastructure, transit and other areas or disappearing into general revenues.

I expect trust in the program will be non-existent outside of those looking to exploit it for funding.

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