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Ontario Stumbles Toward Carbon Pricing

Ontario’s Provincial Government is trumpeting a Great Leap Forward as it announces its Cap and Trade system. There is no doubt at all that it is, as Premier Wynne says, a lot better than nothing. It is a lunge – a clumsy lunge – but a lunge in the right direction.

This is the season when university profs like me are marking exams. We are not very nice people at this time of year. We are hyper-critical and grumpy because so many students have disappointed us. Family members feel everything they do gets a grade. Politicians can dissapoint us too, and we can’t help thinking what grade they should get11136688_364102390466519_7996711462947670624_n.

I’d give the Ontario Cap and Trade scheme a C+ for economics, a C- for politcs and a D for being late and unfinished. Glen Murray and Kathleen Wynne have passed the test on carbon pricing, but their group project isn’t very impressive.

The economic analysis is very conventional and a bit out of date. They basically pulled their plan off the web, copying California and Quebec. That’s pretty safe, but they obviously relied more on media reports than recent economic research. They bought the line that Cap and Trade controls quantities well, even though there is not much evidence that it really does. They ignored the fact that recent research shows that the cost of running the system are very high. Money will go to running the market that could have gone to consumers or the government. They repeat the propaganda about Cap and Trade being a real market solution, when it is a hybrid of a regulatory system and an artificial market. The approach that they adopted increases inequality and will make the poor worse off. C+ at best for their economics.

Their politics are a bit worse than their economics. The main advantage of a Cap and Trade System is that it is supposed to hide the fact that the government is increasing the cost of carbon. Nowadays everyone knows that a Cap and Trade is equivalent to an erratic carbon tax, so they are already getting hammered by conservatives for introducing a stealth carbon tax. That is a pretty significant political mistake.

Their plan will leave them poitcally exposed for a long time. They are hoping that economists and progressives will just hold their noses and their criticisms. After all, the scheme is better than nothing, isn’t it? Unfortunately they now have to deal with each industial organization one by one. They will get bullied into concessions that seriously undermine the pricing system. They will get criticized for making concssions even while they are getting crucified in the press for not making enough concessions.

They will take a long time to get it working, too – probably a lot longer than they expect – and they will get hammered by the left and the right while they dither. They won’t get much revenue and at least half of the public will be unhappy about the way the goverment spends their carbon tax money. I think C- is a pretty generous mark for the political strategy.

It is a Pass, though. The government and Glen Murray have not proven to be brilliant students, but they are going to scrape through.

What I regret most is that they have probably set the standard for the rest of Canada. It is now much harder for anuy other province to adopt the more efficent Fee and Dividend scheme. I’m sure that Glen Murray thinks he has been politically astute, but in fact he has shown timidity and a lack of vision. Ontario is following where it should be leading.

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