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Carbon Pricing: Dollars and Sense

I've spent half a century writing for radio and print (mostly print). I hope to still be tapping the keys as I take my last breath.

The Costs of Pollution

For a long time, pollution was free. We burned coal in our home furnaces and gasoline cost a few pennies a litre, so we drove big, gas-guzzling cars. The smoke stacks of industry spewed toxic gasses into the atmosphere. Rivers, lakes, and oceans were seen as good places to dump poisonous wastes.

In the early 1960s, people started to realize that there was a cost to pollution.

Silent Spring

In 1962, marine biologist Rachel Carson published her book, Silent Spring. It described the harm done by the use of pesticides and predicted a spring in which all the birds and insects were dead and people woke to a world without their sounds.

In her book, she described a town:

“There was a strange stillness. The birds, for example—where had they gone? . . . The few birds seen anywhere . . . trembled violently and could not fly. It was a spring without voices. On the mornings that had once throbbed with the dawn chorus of . . . (many) bird voices there was now no sound: only silence lay over the fields and woods and marsh.”

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Ms. Carson’s book is often cited as the event that started the environmental movement.

Certainly, some people worked on environmental concerns as early as the end of the 19th century. However, Silent Spring brought the issue to the general public and kick-started activist groups.

Governments started passing laws to make vehicles more fuel-efficient. Industries were fined for toxic spills, deliberate or accidental. Chemicals faced more accurate testing and some were banned. But, for the most part, few people paid attention to carbon. The realization that the planet was heating up and that the release of carbon was a major cause changed that.

Pricing Carbon

Carbon dioxide is a major component of greenhouse gas (GHG) emissions. As long as releasing carbon dioxide was free of charge there was no incentive to cut emissions.

Here’s what a Canadian government background paper says: “Putting a price on carbon pollution is the most efficient way to reduce GHG emissions. Pricing pollution will drive innovative solutions to provide low-carbon choices for consumers and businesses.”

Canada has a national carbon-pricing strategy that is strongly resisted by conservative governments at the provincial level.

Canada is coming late to the game. The European Union has had a carbon pricing system in place since 2005. And, as long as the Republican Party is a powerful force in U.S. politics there won’t be a national carbon pricing structure in America.

Carbon Tax

The most direct way of placing a price on carbon dioxide is through a tax based on the amount of emissions. Under the Canadian plan, this starts out with a price of $10 per tonne. This figure has risen by $10 a year until it reached $50 a tonne in 2022. The plan is for annual increases of $15 a tonne up to 2030.

British Columbia was the first jurisdiction to bring in a carbon tax in North America. In 2008, it set the price of carbon dioxide at $10 a tonne and raised this to $50 in 2022. To ease the shock, B.C. cut other taxes to compensate, in what’s called a “revenue neutral” system. Overall, the government takes in no more tax income than it did before the carbon tax.

Critics say the price of $50 a tonne is too low for Canada to meet its international commitments for GHG reductions. The International Monetary Fund says that a price of at least $100 a tonne is needed for countries to meet the targets they agreed to at the Paris Climate Accord. The longer they delay putting a price on carbon, the higher the price will have to be.

Cap-and-Trade

Ontario and Quebec have chosen to use an indirect taxing system that’s called “Cap-and-Trade,” since cancelled by Ontario’s Conservative Party. As a result, Ontario is legally bound to use the federal carbon tax.

The government sets the upper limit of emissions allowed—the cap. Each business gets a permit for its cap. Then, explains The Globe and Mail, “If a company wants to burn more than its share of carbon, it must buy extra permits from other companies that have burned less”—that’s the trade part.

The actual price of additional permits is set by the market itself based on the law of supply and demand. The Globe and Mail continues “Over time, the government gradually lowers the cap, cutting the number of permits it issues and driving up their price.

“The idea is that some companies will cut their carbon emissions in order to make money by selling their extra permits, while other companies will cut emissions to avoid having to pay the price to buy more permits.”

It’s a complicated system and has run into some glitches in the European Union (EU) where it is used. Those who challenge the whole global warming notion say the EU experience shows that the cap and trade system should be trashed. Proponents say such a complex and completely new system was bound to develop kinks and they are being worked out.

Weighing Carbon Dioxide

In order to know how much people and industries must pay for carbon emissions you have to know how much they are releasing. But, carbon dioxide is a gas like air; it doesn’t appear to weigh anything. Actually it does.

Through laboratory experiments, the weight of CO2 produced by burning a known quantity of hydrocarbons has been established. So, if a given factory burns a million cubic metres of natural gas the exact amount of its carbon emissions can be calculated. It’s the same with cars. It’s known how much carbon is released by using a litre of regular gasoline.

The math is fairly straightforward. The Canadian government has done the calculations for us, “ . . . a $10 per tonne carbon price is approximately 2.3 cents per litre of gasoline, 2.7 cents per litre of diesel, and 1.5 cents per litre of propane.”

Armed with that information, consumers can make their choices. They can buy a large sport utility vehicle at a carbon tax cost of almost 50 cents per 100 km. At the other end, is the fuel-sipping Smart car at 14 cents per 100 km. Those who emit more carbon dioxide pay more for doing so.

Global Carbon Pricing Picture

The politics of carbon pricing on a global scale are pretty much the same everywhere. Centrist and left-wing parties support carbon pricing; right-wing politicians oppose it.

According to the Carbon Pricing Leadership Coalition (CPLC), As of May 2021, 37 national and 27 subnational jurisdictions are putting a price on carbon." These represent about 20 percent of all carbon emissions.

“The European Union pioneered international carbon emissions trading . . . The system, currently the world’s largest, covers more than 11,000 power stations and industrial plants, along with airlines, in the 28 EU countries plus three other countries.”

China, Mexico, South Korea, and a few others either have carbon pricing in place or are planning for it.

In the United States, former President Donald Trump said he had no interest in putting a price on carbon. He says climate change is a hoax. However, some states and cities, led by California, are going ahead with carbon pricing schemes of their own.

Australia’s left-wing Labour government brought in carbon pricing in 2011. The centre-right Liberal Party won the 2013 election and scrapped the program. With Labour returned to power in 2022 the tax will make a return.

In Australia carbon pricing is on again, off again.

In Australia carbon pricing is on again, off again.

The Private Sector

While the focus is on government action in putting a price on carbon some non-government organizations are going ahead with plans of their own.

In July 2017, Yale University in the United States started a program to reduce its carbon emissions. The university will charge each of its 250 campus buildings $40 a tonne for carbon emissions. As reported by Nature, “Buildings that reduce their emissions more than the average will receive a share of the funds collected.”

The plan is really a research project aimed at gathering real-world experience in carbon pricing.

In 2012, the high-tech giant Microsoft launched an internal carbon fee. Here’s Nature again: “The fee covers energy consumption (adjusted for employee count) from data centres, offices, and software-development labs, as well as from business air travel.” The fee was set very low at $4 a tonne, but even then the company has seen annual savings of $10 million and a reduction in emissions of about 7.5 million tonnes.

The money saved has been reinvested in green power initiatives.

Bonus Factoids

  • When Rachel Carson’s Silent Spring was published, chemical companies attacked her. She was not qualified to write about science, they said. Pesticides are perfectly safe, they said. In 2012, the American Chemical Society designated Silent Spring a National Historic Chemical Landmark for its leadership in developing the environmental movement.
  • According to the World Bank “in 2017 nearly 1,400 companies disclosed the use of an internal carbon price, including more than 100 Fortune Global 500 companies with collective annual revenues of $7 trillion.”

Sources

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2018 Rupert Taylor