Dion releases carbon-cutting plan

Well, the Liberal plan to cut carbon emissions has been announced. And, with a few reservations, it seems pretty decent. It's called the 'Green Shift', and you can read more about it here [link corrected...thanks to Angry in the Great White North]. The plan call for imposing an effective tax on carbon emissions- $10 per tonne initially, rising to $40 per tonne at steady-state. The average Canadian produces about 5 tonnes of greenhouse gases every year, so the new tax will cost between $50 and $200 per person. Not too expensive. Plus, the additional revenue will be used to cut income taxes, thereby making the program cost-neutral for the average taxpayer. It will also not increase gas taxes, since the Libs estimate that current tax rates for gasoline is about $42 per tonne of carbon produced.

This is clever for a few reasons. First, consumption taxes are a good way to disincentivize socially harmful behaviour, such as smoking or excessive alcohol use ('harm' in these cases being principally expressed in costs to the healthcare system). Second, it gets us a little closer to a 'true cost' economy, where the price of a given good or service reflects not only the cost of labour and materials, but also their various infrastructure requirements and negative externalities. So, for example, under true cost economics, the price of a car would not only reflect production value, but also the maintenance of roads (infrastructure) and of their environmental impacts (negative externalities). The Lib plan echoes the broad consensus that the best way to fight carbon emissions is to be put a price on them.

One concern, however: consumption taxes are regressive, in that they disproportionately impact people with lower incomes. People with high incomes can typically afford to pay a consumption tax, since it reflects a smaller overall proportion of their available funds. People with smaller incomes are less able to deal with these additional costs. This is somewhat offset by the income tax reduction, which while progressive, cannot be reduced. Under the new system, an individual could reduce their overall tax load by consuming less. And there are several expanded tax credits highlighted by the Liberal plan, but I will need to see if they actually offset the carbon tax costs before giving my enthusiastic endorsement.

So, not a bad proposal. Not the most ambitious one, but one that seems to strike an effective balance between the economy and the environment. But, as the old saying goes, the proof of the pudding is in the eating. We'll have to wait until a Liberal mandate to see it in action. And that may be a loooong time coming.