Why do Canadians seem to resolve difficult issues more rationally and peacefully than Americans? Perhaps it's an outgrowth of our origin in violent revolution versus Canada's history of peaceful cooperation with England. In any case, Canada has done it again by launching a national trial of the most promising solution to climate change: a fully refundable carbon tax.
While President Trump pulls the United States out of an international climate agreement, questions the reality of global warming and accuses scientists of dishonestly following a political agenda, Prime Minister Justin Trudeau has announced Canada will put a rising fee on carbon emissions and return the revenue directly to Canadians. The fee starts in 2019 at $20 per ton of emitted carbon dioxide and rises by $10 every year until reaching $50 per ton in 2022, where it will stay unless the legislation is revised. The tax will raise fossil fuel prices in order to reduce fossil fuel consumption; for example, a $50 per ton tax raises gasoline prices by about 50 cents per gallon.
Trudeau emphasizes that "every nickel" of the revenue will be returned to Canadians on a per-capita basis. Thus a family of four will receive $307 with their tax return in spring 2019, rising to $718 by 2022. Using one province as an example, Trudeau said 80 percent of Ontario families will get back more than they pay. Thus the fee creates an income redistribution from the 20 percent who guzzle lots of fossil fuel to the 80 percent who consume less.
A carbon tax has two enormous benefits: First, it improves the functioning of any market economy by incorporating the social costs of carbon pollution into the price of fossil fuel. As Trudeau put it, "It is free to pollute, so we have too much pollution. Starting next year, it will no longer be free to pollute anywhere in Canada. We are going to place a price on the pollution that causes climate change. ...We're also going to help Canadians adjust to this new reality."
Second, it reduces global warming by reducing the purchase of greenhouse-gas-emitting products. Although $50 per ton of emissions does not begin to cover carbon's full social cost, the tax could go a long way toward meeting Canada's climate targets. Furthermore, the benefits begin even before the plan goes into effect, because companies must take the plan's future economic effects into account in today's decision-making.
Canada was one of the 195 countries signing the United Nations' 2015 Paris climate agreement whose aims include limiting global warming to less than 2 degrees C above pre-industrial temperatures. Canada's commitment requires reducing its carbon emissions to 30 percent below 2005 levels by 2030; the carbon tax will be an important tool to reach this goal.
Canada's House of Commons approved the plan this year, fulfilling a campaign pledge that Trudeau made in 2015. British Columbia and a few other provinces led the way by passing their own carbon taxes in recent years. British Columbia has several years of experience with refundable carbon pricing, having implemented in 2008 a $10 per ton carbon tax which it is gradually raising to $50 per ton by 2021. According to the World Bank, British Columbia's policy has been highly effective in spurring fuel efficiency gains. Furthermore, the tax did not harm economic growth; on the contrary, the province outperformed the rest of Canada every year since 2008. A recent study verifies that the tax has been truly revenue neutral: Citizens fully recovered the tax expenditures.
Economists overwhelmingly support a refundable tax on carbon pollution. They note that a properly re-distributed tax can actually increase a nation's gross domestic product, that such a fee can increase jobs because most of the alternatives to fossil fuels employ large numbers of people, that there are large health benefits and reduced health costs in reducing emissions, and that a tax is simpler and economically preferable to government regulation as a means of reducing emissions.
Global warming will only increase year by year, remaining a menace far into the future. Canada's plan appears to be the first fully refundable national carbon tax. I'm optimistic it will establish a new international trend, vastly improving humankind's chances of planetary success. It's time for America to pull its head out of the sand and step into the sunshine of this refreshing development.
You can be part of the refundable carbon fee solution by contacting Citizens Climate Lobby online. There are several Arkansas affiliates, including Fayetteville.
Commentary on 11/13/2018