Carbon pricing and economic freedom


in Canada, Economics, Politics, The environment

Post-Dion, it will take a bold politician to revive the idea of a carbon tax in Canada. One ironic consequence of that is that it is likely to produce more ‘command and control’ style environmental policies. Whereas an economy-wide carbon tax (or cap-and-trade scheme with auctioning) would encourage every individual decision-maker to examine the cost of reducing their greenhouse gas emissions, trying to achieve those reductions based on targetted government initiatives requires that political and bureaucratic decision-makers try to perform that analysis: trying to identify low-cost potential emissions reductions, as well as instruments through which they can be encouraged.

I have argued previously that just putting a price on greenhouse gas emissions is not sufficient to drive the change we need, because other market failures and economic structures need to be overcome. With that caveat expressed, it is more than a touch ironic that an anti-tax ‘free market’ ideology that rejects carbon pricing may lead to centrally planned solutions emerging, as opposed to market-directed ones.

A related irony concerns the timing of mitigation. As Joseph Romm has repeatedly pointed out, we have the opportunity today to begin the transition towards a low-carbon economy in a relatively voluntary way. Nobody needs to be banned from doing essential; rationing is not required. All we need are sensible economic instruments and accompanying policies, provided we get started right away. By contrast, if we squander the opportunity we have now, achieving the stabilization of the atmospheric concentration of greenhouse gasses will require that far more onerous burdens be placed on individuals. In short, today’s unhampered freedom to emit greenhouse gasses is inexorably linked to the necessity of sharply dimininished freedoms in the future.

{ 1 comment… read it below or add one }

R.K. December 18, 2008 at 1:21 pm

The absence of carbon pricing may drive the creation of some policies that achieve the same goals, but they aren’t likely to be as numerous or costly for industry.

Opposing carbon taxes means both lower costs associated with mandatory mitigation and more opportunities to lobby for weak policies and special exemptions.

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