Since their first day in office, the Harper Conservatives have been both big spenders and users of the tax system to achieve social (and political) objectives. What they haven’t done is deploy regulations to achieve their objectives.

Instead, they’ve railed against excessive regulations. They even established a Red Tape Commission to reduce regulations that got in the way of doing business.

They’ve been quite clear: Spend and tax to achieve objectives, but don’t regulate. Except, it seems, in one huge area – greenhouse-gas emissions. In this case, the Harper Conservatives have jettisoned their usual approaches and opted for the least economically efficient methods imaginable: regulations and subsidies. Predictably, the government is failing to meet its own targets.

It has recently been announcing regulations for new coal- and natural gas-fired plants. Later regulations will arrive for existing coal-fired plants. Still later, perhaps at the end of 2012, will come regulations for oil operations. These will be so detailed as to be specific to each plant across the country, a task of mind-boggling complexity designed by civil servants.

James Booth, Toronto

Ontario shelves eco fees after fierce backlash

Karen Howlett

Toronto — From Tuesday’s Globe and Mail Published on Monday, Jul. 19, 2010 8:54PM EDT Last updated on Tuesday, Jul. 20, 2010 3:22AM EDT

The Ontario government is pulling the plug on its controversial program that slaps eco fees on thousands of household products, after a growing backlash from retailers and consumer groups.

Environment Minister John Gerretsen will announce on Tuesday that the government plans to eliminate the new fees charged on aerosols, cleaning products and thousands of other potentially toxic items, according to government sources.

The cancellation comes less than three weeks after the fees were introduced, marking another hasty policy retreat for the McGuinty government. Premier Dalton McGuinty shelved a new sex-education curriculum last April amid complaints from parents and religious groups

Jun 18th 2010, 5:57 by T.C. | LONDON

THIS week, in advance of its “emergency budget” on June 22nd, we wrote about how Britain might close its deficit, which currently stands at 11.1% of GDP. One idea we advocated was a carbon tax. We commissioned some modeling on the subject from Cambridge Econometrics (who have a model specifically designed for this sort of thing). I wrote up the headline results in a small piece to accompany the main article, but space constraints prevented me going into too much detail. Happily, space constraints don’t apply on the web.

The Economist has long advocated a carbon tax as the best way to deal with climate change. Carbon taxes are a subspecies of Pigovian tax; taxes that are designed primarily to change behaviour rather than to raise revenue. The idea is to try to manipulate the price of a good or a service in order to capture all the negative externalities it imposes. Pollution is the standard example: neither the owner of a factory nor the buyer of its goods, for example, care very much that the local river is being filled with nasty chemicals as a byproduct of the factory’s work. Those who live by the river do care, but, not being party to the transaction, there isn’t much they can do about it. The uncompensated costs imposed on locals by the factory-owner’s activities represent a market failure. In theory the government would step in and impose a tax on the factory owner designed to compensate the locals for the damage caused by his actions (in the jargon, the government would make sure the private cost of producing the goods was equal to the social cost).

It’s the sort of dry, neat idea that appeals to professional economists, but there are reasons for advocating carbon taxes in the real world, too. Having one, unchanging price for carbon offers certainty to businesses and the public (unlike cap-and-trade schemes such as the EUETS, which has seen big price fluctuations), an important benefit to industries like power generation, which produces a lot of greenhouse gases and which must be confident that an expensive new power station will stay profitable for several years. And yes, before you rush to the comment button, there are important downsides, too. I’ll explore some of those below.

With all that in mind, we investigated two different basic scenarios. One applied an economy-wide carbon tax that aimed to raise 1% of GDP in revenue by 2020; the other applied a tax set at a level designed to ensure that Britain meets its commitment to cut emissions by 34%, relative to their 1990 levels, by 2020. In both cases, to keep things simple, we scrapped all the other policies that aim at the same outcome, such as Britain’s membership of Europe’s emissions-trading scheme, subsidies for renewable energy and so on. The results of the first scenario are set out in the print piece, but briefly, electricity prices fall as expensive subsidies for renewable energy are replaced by the carbon tax. That provides an economic boost, the government gets an extra revenue stream, and output is 2.5% higher come 2020 than in the baseline scenario. Somewhat embarassingly, emissions of carbon are slightly higher than in the baseline scenario. But we chose 1% of GDP as our target figure for convenience more than anything else. There’s no reason the tax couldn’t be tweaked a little to reduce emissions, although a high enough tax would presumably start to drag GDP back down again. At any rate, the modeling strongly suggests that a tax would be much more efficient than the present arrangements.