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Monthly Archives: December 2016


The Ministry of the Environment and Climate Change has its Head in the Sand

The Minister of the Environment and Climate Change, Glen Murray, is living in a carbon bubble. Noise comes out, but information doesn’t go in. The Minister’s recent response to the Chamber of Commerce request shows how out of touch the Minister has become. The Chamber is asking for inaction on the provincial Cap and Trade policy. The Minister responded with a barrage of misinformation.glen_murray-1

For example, the minister claimed that “In joining North America’s largest carbon market, we are becoming partners in the most efficient and cost effective emissions reduction program there is.” This is simply false. There is wide agreement that the BC carbon tax is the “most efficient and cost effective emissions reduction program there is.”

I don’t think that the Minister is lying. He is carefully not listening to anyone that doesn’t agree with him. He has his own truth. Unfortunately, while the Minister is allowed to have his own opinion, he doesn’t get to have his own truth. Thinking about carbon pricing has moved on, and it is time he caught up. Cap and trade was the preferred option 15 years ago. Now its failures are just too big to ignore. Cap and trade is no longer the preferred option. It is the Zombie of climate change policy.

There are other blatant misrepresentations in the Ministry Press release. The Ministry claims that “Third-party economic experts have confirmed that our plan is both the most cost effective and best at reducing emissions compared to carbon pricing alternatives.” I suspect there is some truth in this – it is possible to find “third-part experts” who claim climate change” is not real too. What is not true is that there is lot of support among economists for a cap and trade system RELATIVE TO A CARBON TAX. The view of the majority of people who study the issue is that a carbon tax will work better, will cost less and will be more efficient.

The Minister also claims that Ontario’s business community has “shown support for our plan to fight climate change because directly compared to the alternatives, it is best suited spur economic growth and achieve real emissions reductions.” This is another statement with a smidgin of truth. SOME businesses like the scheme. The ones that like it most are the ones that stand to get exemptions under cap and trade and the people who stand to make money trading carbon permits. A large number of other businesses support a simple carbon tax. It is interesting to note that smaller businesses tend to oppose any carbon pricing, while bigger ones, with better research capacity, tend to support a carbon tax.

The Minister went on to demonstrate an astonishing ignorance of how to use evidence when he cited California. He said that its economy grew at a pace that exceeded the growth of the rest of the U.S. economy once it brought in cap and trade. He is right, but it is also true that California has grown at a pace that exceeded the growth of the rest of the U.S. economy for the last 50 years. He might as wells say that California hasn’t experienced a major earthquake since it brought in Cap and Trade. There is about as much connection between Cap and Trade and California growth as there is between Cap and trade and earthquake activity.

These inaccuracies show one of two things: either the Minister is ignorant, or the Minister will say anything to avoid facing the fact that he is in charge of a policy that will fail, and is depending on public ignorance to cover his mistakes.

Either way, it is time for Glen Murray to do some research.




Chamber of Commerce Confusion: Dither, Don’t Fix

It is hard to be so right and so wrong at the same time. Twenty of Ontario’s Chambers of Commerce have finally realized that the provincial Cap and Trade policy is a bundle of mistakes. Congratulations for noticing.carbondioxide

Unfortunately the best advice that the Chambers could come up with is for the province to do nothing until the province has a better version of Cap and trade. There is no better version. Cap and Trade will not work. It will also be expensive to implement and will hurt Ontario’s economy. It can’t be fixed.

The problems can be fixed, however, by converting the half-baked Cap and Trade system into a proper carbon tax. Instead of going backwards, the Chambers should do a little bit of studying and propose the only approach that will actually work.

There is no way that we can back away from pricing carbon. That would be a crime against humanity. We know that people are already dying from the effects of climate change and we know that we will not be able to prevent millions more from dying. The Chamber’s are right to point out the problems that the provincial plan will cause for some people in Ontario. They need to take seriously the cost of further delay and inaction for the rest of the world and for our own children.

What we want is a nearly painless way to price carbon, and we have one. It is called a Carbon Fee and Dividend.

Carbon Fee and Dividend is simple, cheap to implement, effective and it solves almost all the problems that the Chambers are complaining about.

The Chambers want the province to defer implementing Cap and Trade until they have more details worked out. I am calling on the Chambers to stop giving advice until they understand the alternatives.

It doesn’t take a genius to see that if you put a high tax on all hydrocarbon fuels you encourage people to shift to other sources. You also encourage the already blindingly fast technological innovation that is underway. I assume that the Chambers understand this much.

It also doesn’t take a genius to see that if you then gave the money collected back to consumers they would be able to buy just as much as they could before the tax. I am pretty sure the Chambers haven’t figured this step out. Economists have a name for this kind of restitution: it is called a ‘compensating variation.’ It compensates consumers for the loss of purchasing power brought on by the tax.

It is impossible to compensate perfectly, of course – If you simply give everyone the same sized dividend check each month, most poor people would end up with a bit more money than they paid in carbon taxes. Richer people would lose a bit. This is not a serious imperfection. Most of us approve of small transfers to the poor.

There is one big problem left, but it has an easy solution as well. If we put a tax on and Donald Trump doesn’t, that will hurt our industries. How can our exports compete? Won’t cheap imports destroy our domestic industry and steal our jobs?

It doesn’t take a genius to see that we need what are called “Border Tax Adjustments” or BTAs. When something comes into Canada from a country that does not have a carbon tax we just add the tax to the price. We level the playing field. When Alberta ships oil to the states, where they don’t have a carbon tax, we give the company back any tax we collected. We level the playing field with a BTA.

The principle is so simple. Canadian consumers pay a tax for any carbon emitted in producing what they consume, no matter where it comes from. They get the tax money back. We don’t tax the carbon content of what people consume in other countries.

A Carbon Fee and Dividend combined with BTAs is both effective and painless.

It did take a genius or two to figure out that BTAs are perfectly legal under our international trade agreements. We can go ahead and impose BTAs now if we want to. The only real condition is that everybody producing the same product in Canada has to face the same effective carbon tax rate. That’s what is so important about Trudeau’s commitment to have a minimum rate for the whole country.

So there is a better system that the Chamber does not seem to understand. Let’s hope they do their homework before they say any more. There is a real danger that they will delay action and delay will kill people.

The good news is that the province can convert its Cap and Trade system to a carbon tax fairly easily. The reason is that the most effective part of their system is already a carbon tax. When the Province sells permits to the gas distributors or fuel companies it is really just collecting a tax on consumers.

In fact 90 percent of the problems and 90 percent of the waste in a cap and trade system comes from the small part of the system that is set up so big emitters can trade permits. In fact the province only needs to back out of the trading system. It may have to buy back any permits it has sold, that that would not be a net cost. In fact the province might make money by backing out because the price of permits tends to fall.

So the Chambers were right to knock the provincial Cap and Trade scheme. They were wildly wrong to think it can be fixed. Since we have a better system available and it is actually easier to implement than any Cap and Trade scheme, the Chambers really need to finish doing their homework.

I am calling on the Chambers of Commerce of Ontario to propose a solution. Instead of calling for a step back, lets see the Chambers ask for a step forward. Call for an effective carbon tax, a 100% dividend for consumers, and BTAs. Don’t dither any longer: fix the problem.


The City of Slightly Smaller Sudbury

The Ministry of Finance has issued its 2016 population forecasts. They do not agree with the forecast used in the City’s proposed Transportation Master Plan.

The Ministry says that the population of the city in 2041 will be 163,875. That is a nice number, but it is 513 fewer than in 2015. The Province expects a quarter century of no growth for the City.

So why do the City engineers keep telling their City council to invest in road expansion to accommodate a growing population? The city already has more roads per capita than any other city in the Province.

(Some say the City also has more potholes than any other city, and should concentrate of fixing the roads we have, but Statistics Canada doesn’t do a pothole census, so we can’t be sure if we have too many. )

Labour market data also points to a no-growth scenario for the city. The graph below shows no job growth since the recession.

The North as a whole is actually in decline. During the economic recovery from 2010 to 2015, Provincial employment grew by 1.1%, jobs in the Greater Golden Horseshoe increased by 1.8%. and employment in Northern Ontario fell by 0.2%. The employment rate in the North is 7% lower than the the employment rate for Ottawa and the Toronto regions. This is a situation sure to drive young people out.

Schools provide another sign that the (slightly updated) 1960s Transportation Plan in so no longer relevant. The news has been full of stories about school closures. That is normally a sign of a city in decline. The population forecast from the province says we should expect the 5-9 year old group to decline from 886 in 2015 to 645 in 2042. That is a 27% decline.

The Ministry is actually predicting that every age group under 70 will decline. Every group over 70 will increase. Welcome to Sudbury, the North’s Old Age Home

A Transportation Plan for a city with no growth, more elderly and fewer schools would look very different from the plan that Council has been asked to consider. It would take into account lower average income resulting in downsizing for many households, lower home prices leading to reduced property tax revenue. It would take account of a decline in rush hour traffic as more people retire, and a relative increase in off-peak travel. The result will almost certainly be a reduction in the relatively small amount of congestion the city now experiences. Since retired people travel less than those employed full time it would assume an overall reduction in traffic, not an increase. It would assume greater demand for walkable districts

A sensible plan would therefore focus on improved local walking and cycling routes to all the shopping districts in the community, so that anyone within a kilometer can get to the local stores, the local school, and the local library safely on foot.

A sensible Transportation Plan would also have a section about planning school locations to minimize the time children spend on buses. It is hard to think of a policy so close to child abuse as our habit of busing children. Failure to make good neighbourhoods for children is a kind of community suicide.

Unfortunately the Plan doesn’t include these modest, cheap and important parts and asks for spending to deal with imaginary growth and occasional congestion

Council members and citizens should take a look in the proposed `Plan’ to see exactly how the Four Corners area, New Sudbury and the downtown area going to be made much better for pedestrians. This is the direction that transportation plans in every other city have been going. It i not the direction built into the Sudbury Plan.

Council should send the `Plan’ back for a massive rewrite. Council should get someone who is in touch with the real world to write the new version.


The Painless Carbon Tax

The most important goal for Canadians who want to prevent disastrous climate change is to get a $150/tonne carbon tax. Be clear about that: the price has to be high and comprehensive to do the job.

Without a high tax we are just moving the deck chairs on the Titanic. Once you understand that, everything else falls into place.climate-change

1) We have to give all the money back to consumers. That makes the tax virtually painless for consumers, and if it is painless for consumers, it is painless for politicians. Without a 100% `carbon dividend’ for consumers effective action is politically impossible.

The simple fact is that a carbon tax is free. Talk about how to use carbon tax revenues for various pet projects is foolish, counter-productive and distracting. Naomi Klein, for example, in opposing the Washington State initiative, has done the fight against climate change serious damage.

2) We have to have border tax adjustments (BTAs) to protect our own industries: a) tax the carbon content of all imports unless it has already been taxed, b) rebate the carbon tax to exporters so they can compete. Without BTAs a high carbon tax hurts Canadian producers. With BTAs a high carbon tax has no effect on exports.

Border tax adjustments are legal according to almost all legal analysts. There are some complicated details, but none as difficult as making a self-parking automobile. The trick for Canada, now that we have unilaterally committed to a carbon price is to unilaterally exercise our right to impose defensive carbon taxes on imports.

3) Forget the tar sands. The first two points mean that we tax the carbon on any tar sands oil that is used by Canadians and we let the oil companies keep the carbon tax on oil they export.

This may seem inconsistent from the point of view of reducing fossil fuel consumption. It is not. In the long run it will have no effect on total consumption. If we don’t supply oil there are lots of cheaper suppliers who will. Demand is what will determine how much oil is burned. A tax is the only tool that can significantly reduce demand. If we are to have BTAs for other industries, we have to have BTAs for oil. Life is a lot simpler than it seems.

More important, rebating carbon taxes for exported oil means we don’t have to fight with the oil companies. They simply won’t care if we have a $150/tonne tax. Albertans can’t complain that the carbon tax will hurt them. Brad Wall becomes yesterday’s cuckoo. Properly applying the border tax adjustment to oil is political ju jitsu. It neutralizes the biggest enemy.

Canadian politicians – and I include Ontario’s Premier, Kathleen Wynne and Energy Minister Glenn Thibeault – still have not shown they understand the simple facts about fighting climate change. Either that, or they haven’t understood the simple facts about climate change itself. They are fiddling while Rome burns. They are fiddling while the coral die, while the oceans warm, while 384 million in the coral triangle around Indonesia, Malaysia, the Philippines, Papua New Guinea, Timor Leste and Solomon Islands move closer to starvation. Or maybe it is just that they are afraid that some voters know even less than they do and might not re-elect them if they tell the truth.

Pipelines are a Distraction

Personally I don’t want to see pipelines built – they may encourage further investment in the oil sands and may very, very slightly increase oil consumption worldwide. Both of those are tiny effects. The main problem is that it is a huge waste of capital to supply high-priced oil to a shrinking market.

The only positive things you can say about the pipeline projects are that, first, a little more of the money spent on oil as it is phased out will flow into Canada rather than into the evil USA. Since the companies are generally foreign owned that is not really a big benefit. Some of the small additional revenue will go to taxes and wages in Canada, and the Canadian dollar will be higher, hurting more future oriented industries.

Second, the two projects that have been approved will proceed under improved safety standards — they amount to a safety upgrades of older pipelines.

Third, the pipelines involve private money – if the pipelines go ahead, the companies may well go bankrupt, and that will be a positive contribution to phasing out oil as a fuel source.

So Trudeau’s approval of two pipeline projects does not bother me much — I am not going to spend my time opposing them.

The target I think really is essential to stopping the flow of oil through Vancouver and the Gulf is to end all subsidies to the oil companies.

Trudeau promised to do this.

“We will fulfill Canada’s G-20 commitment
to phase out subsidies for the fossil fuel
industry.” Liberal election promise

Take away the $3.3 billion in subsidies — which includes $1.16 billion from the province of Alberta — and these pipelines may have nothing to carry.

Currently the taxpayers of Canada contribute on average $100 per year to owners of the oil and gas companies. This is a reverse carbon tax. It has to go. Send a note to your MP: “When will the subsidies stop? You promised to end them. Do it.”

The next step is to get the Federal and Provincial government to admit that the price of carbon has to go over $100 per tonne. Once our governments tell the truth about what we need to do, there will be no more investment in tar sands production or pipelines.

Telling the truth is the second most powerful weapon the politicians have in the fight against climate change. It is also the cheapest – all they have to do is replace a few weasel words and a bag of hot air with a few accurate statements.

The most powerful weapon, of course, is a high carbon tax – which also costs nothing, since all that happens is money is collected with one hand and given back with the other.

So what is more important than fighting pipelines? Teaching politicians that fighting climate change is very cheap: take back a few subsidies, tell the truth and move some money around.



What Glenn Might Be Saying if He Understood

Most economists accept the following facts:
1) The single most important action in a Canadian Climate policy is pricing carbon.
2) Prices give a signal
3) The signal must be clear and STRONG
4) The only clear signal is a HIGH price
5) “High” means over $100/tonne
6) The only way $100/tonne is politically acceptable and economically harmless is if the tax is returned to consumers
7) Ideally we need a global carbon tax but we won’t get there soon
8) A carbon tax is superior to a cap and trade system
9) Canada has committed unilaterally to a carbon price
10) Canada can unilaterally impose border tax adjustments

Taken together there is really only one strategy available: A $100+ carbon tax combined with a dividend returning all the revenue to consumers and a system of border tax adjustments. Nothing else will work. I have illustrated the alternatives in the figure below. Feel free to reproduce it.

Economists have accepted the notion of revenue neutrality, but have not all recognized the implication of a high tax rate. At $100/tonne or $200/ tonne the income effects of the tax is enormous. To keep consumers at the same level of purchasing power the money has to go back to them. Cute schemes for recylcing the money through corporate taxes or environmental investments are harmless at low levels of tax and politically and economically impossible at a high level. Only what the Citizens’ Climate Lobby call a “Fee and Dividend” that returns all of the fee to consumers will be accepted by the public.

Based on experience with Cap and trade as well as theoretical research it seems clear that cap and trade will never work well. The assessment by the Ontario Auditor General is that Ontario’s version will cost billions and achieve 20% of its goal. Ironically, most of what is achieved will be the result of the part that is really just a hidden carbon tax. Canadian policy analysts have been polite about Ontario’s decision to go with cap and trade because of a widespread belief that any system is better than no system. This will prove a disasterous error if cap and trade makes it impossible to an effective carbon prices.

The trouble is that with cap and trade it is exceptionally hard to get to a high price and very hard to introduce border tax adjustments. In other words, cap and trade is a trap – a dead end that will prevent us getting to an effective carbon price.

I am hoping that we will soon see research on backing out of cap and trade – kind of like the kind of stuff you see on the web about getting your truck out of a mud hole.the-route-to-successful-carbon-pricing

Glenn Thibeault: Forget his Ethics, Focus on his Competency.

The Energy Ministry may be the most important part of Kathleen Wynne’s government. It will be a key player as Ontario navigates the choppy and uncharted waters of climate change. Lives – millions of lives around the globe – depend on it. It is a complex portfolio, demanding a solid understanding of the very large and technical electricity generation system. The Minister has to understand the science of climate change and the economics of the tax system. It is a huge responsibility and it takes a lot work just to wrap your head around the issues.glenn-thibeault-toronto-sun

Glenn Thibeault is not up to the job. He is a nice enough guy, with a vague commitment to doing good. He does not understand why cap and trade will fail although I explained it to him during the election and wrote a brief to his government afterward. Now that Provincial Auditor Bonnie Lysyk has said pretty much exactly what I told him during the election, Thibeault’s only response is that he hadn’t had a chance to study Lysyk’s report yet. Glenn has had plenty of time to get the facts straight. Instead of doing his own thinking, he is just going along with the gang.

It is unfortunate: the Ontario cap and trade system is a disaster, as the Auditor General points out. By the time it was implemented expert opinion had moved on. The majority of the economics profession had already decided it was a bad approach. The government stuck to a carbon-pricing bible that had been written 15 years earlier and had already proven to be apocryphal.

Faced with facts, Glenn again professed his faith in the plan. “It’s the best way to reduce greenhouse gases and monitor costs, and see those prices come down,” he said. This is wrong – wildly wrong. It is actually irresponsible to say things that are so wildly off base. Glenn is out in the fields sowing confusion and lies, (I didn’t say he is lying – just that he is repeating lies) when he should be in his basement studying.

Glenn has shown he doesn’t understand the electricity market. Now he has shown he doesn’t understand cap and trade. He has to step down as minister for the sake of the Province. The post he holds is far too important to leave in the hands of a man who is so hopelessly in over his head.

(apocryphal: of a story or statement of doubtful authenticity, although widely circulated as being true.)