Did you know that the State Grid Corporation of China is the largest power company in the world? Or that it ranks 7th on the Fortune Global 500? Did you know that SGCC is a partner in Caring for Climate, the UN’s Initiative for Business Leadership on Climate Change”? That over 300 companies have signed on with Caring for Climate asking for a price on carbon? Or that only four Canadian companies have signed on so far?
Did you know that approximately 40 countries and more than 20 cities, states and provinces use carbon pricing mechanisms or are preparing to implement them? (There is a very good map on page 27 of the Ontario discussion paper on climate change) Carbon pricing is coming, and the key question is which version.
The two main models are the carbon tax and carbon permit trading (cap and trade). The province is trying to figure out which to use.
My approach is to start with the core idea: we want to make burning fossil fuels more expensive so people gradually shift to other products and find ways to reduce their fossil fuel use. To do this, both apporaches raise the cost of using fossill fuels for consumers.
With a tax, the increase in price goes to the government collection office.
With cap and trade the increase goes to corporations. They spend quite a lot on lawyers and finacial specialists and on filling in forms to show they havn’t cheated on their permits. The goverment collects some of what is left. How much the government gets depends on how tough the government is, but it will be a lot less than is taken from consumers. Then the government has to spend a good deal on regulation and checking up on the corproation. Cap and trade always invovles high `transactions costs.’
So what happens to the money then? The large sum from taxation or the much smaller amount left over with cap and trade still has to be spent or the economy will be seriously hurt.
Who should spend it?
I think consumers should. The reason to pricing carbon is to correct a distorted price system. Taxing and giving the money back to consumers does that job without hurting them. Correctiing the price system without hurting consumers is something voters will agree to.
The problem is that with cap and trade there is so much waste in the system you cannot avoid hurting consumers. To avoid the waste you have to go back to a carbon tax. No matter how you play it a carbon tax hurts consumers less.
Using the money for other purposes adds unnecesary complications. You are asking consumers to agree to a double-barrelled question: “Can I fix the price system and at the same time spend some of your money for other things”. You are confusing the issue, you driving everyone who disagrees with either project into the same tent. You are looking for trouble.