Carney, the establishment economist, abolished the best economist-approved carbon policy there is?!
Let's get into it.
Taxes have two broad purposes (three, if you believe the MMTers and their confused take on money demand):
- raising revenue for the state and
- reducing activities that are harmful (to consumers themselves or others, including the "planet")
Carbon taxes, a popular (in theory) proposal among economists, are pretty efficient (#971152) in reducing "harmful" activities without too much distortion. They aren't introduced for the gov to pay expenses, but for households to face sterner pricing pressures to consume less carbon.
Basic idea: if tobacco is more expensive, on the margin fewer people smoke (and those who do smoke less).
Analogously, if we tax pollution (a bad), we get less of the bad thing and the world is thus better off.
Among all the various proposals for "dealing" with the climate crisis (except the most obvious... to do nothing, and move on...), economists generally like it because it sounds like externalities (which they think they understand): taxes-at-origin can efficiently be propagated through the price system. _Use the thing markets are excellent at to "fix" the thing markets aren't so good at (=internalizing externalities... yes yes, it's a bullshit theory but bear with me here.)
So, Canada was this role-model with its (initially) C$20/tonne tax, rebated to households
Rebated? I thought you said this was an urgent crisis?
Yes, that is the pathetic/dishonest implementation of these things: it's so urgent we're all gonna die in twelve years, but it's not so urgent that we can't/want to also do a little bit of redistribution while we're at it.
(Bonus task for the economics-y oriented reader of ~econ, i.e. @Undisciplined disciple: the structure still makes economic sense since it shifts around the relative prices and thus shifts consumption pressure from carbon-expensive to carbon-cheap things. Drawing up the indifference-curves and showing that, even under full rebate there is some carbon benefit is a common exercise in introductory microeconomics classes.)
I also love that they had to force people to know/appreciate the rebates:
At first, the rebates simply appeared as discounts in individuals’ annual tax statements. Later, they arrived as payments to their bank accounts — but often without labels clearly indicating what they were, until the government passed a law last June forcing banks to change their systems to enable this. Even then, awareness of the rebates was limited by the fact that they were paid out to only one adult in each household.
The scheme, while perfect on paper, worked very poorly since people hated the expensive prices they paid but they were blasé about the various tax rebate/returns they seemingly unrelatedly received. Ooops
Poilievre’s warnings of the tax’s damaging impact on Canadian households “just resonated really hard, even though the data said otherwise”, says Dave Sawyer, principal economist at the Canadian Climate Institute. This meant that even Carney — who had made climate action his main focus since leaving the Bank of England in 2020 — saw no option but to drop the tax. “It’s become too divisive,” he explained in January during his run for the Liberal party leadership.
And so it goes: Pielke's Iron Law of climate policy strikes again (#935095, #968331): You can't make people (feel) poorer when implementing (mostly symbolic) measures to save the world.
recent research is casting doubt on whether those Nobel-winning economists were right to assume that making carbon taxes revenue-neutral would make them more politically viable.
Good riddance, carbon taxes. May you never return to the civilized world.
non-paywalled here: https://archive.md/T68lx