A Tale of Two Elections
11/7/2008 by James Handley
The presidential campaign that culminated in Barack Obama’s historic win wasn’t the only national election in North America this fall. James Handley reports.
After building his campaign around a “Green Shift,” a revenue-neutral carbon tax that he promised would return “every penny” to taxpayers, the leader of Canada’s centrist Liberal Party, Stephane Dion, took a pounding from both left and right in the Oct. 14 election. Conservatives spun the Green Shift as “a tax on everything,” while the leftist New Democrats branded it as body blow to the poor, ignoring that their own cap-and-trade plan would squeeze families with higher fuel prices without the Green Shift’s offsetting tax reductions.
Though Dion and the Liberals carried enough other baggage to lose most elections, the carbon tax is being tagged as a factor in the Liberals’ loss of 26% of their seats, almost entirely to the Conservatives. Yet when McAllister Opinion Research asked nearly 2,000 Canadians what they thought of a tax shift that involved "cutting income taxes and increasing taxes on pollution," two-thirds said they thought it was a good idea. And a ten-point open letter issued by 230 leading Canadian economists and 120 prominent scientists incorporated key elements of the Green Shift. Clearly, a different message, or messenger, or both, was needed to create a political victory for a Canadian carbon tax.
Veteran environmental advocate Alan Durning, founder of the Seattle-based Sightline Institute, attributes the Green Shift’s political difficulties to three cognitive factors:
Distrust of government: Taxpayers don’t believe that income tax reductions will compensate for their carbon tax increases. Indeed, their skepticism may have been well-founded in this case, with Dion’s tax shifts adding up to a good deal less than 100%, according to at least one post-mortem.
Disbelief in “price elasticity”: Many citizens don’t believe that higher energy prices lead to less usage. So the premise of pollution taxes, that they create across-the-board incentives to reduce emissions, doesn’t make sense to them.
The Asymmetry of Losses and Gains: People are more averse to possible losses than they are attracted by possible gains. The $10 you stand to lose count more to you than the $10 you stand to gain. As a consequence, the carbon tax looms much larger in voters’ minds than the offsetting tax reductions.
Durning concludes that Canada’s election represents a “shrug” — the “Green Shift” just wasn’t understood. It isn’t “likely to attract a swarm of enterprising leaders to carbon tax shifting as a way to kickstart political careers. But it won’t completely scare them off, either.”
South of the border, and three weeks later, after a campaign that offered little specific discussion of climate policy, Barack Obama won the White House with a majority of the popular vote and a 2-to-1 margin in the Electoral College. Obama’s election-night speech didn’t mince words on the climate crisis, calling out “a planet in peril,” along with two wars and the worst financial crisis in a century, as the challenges facing Americans. Evidently, Obama was wise to steer clear of climate policy specifics during his campaign. Maybe, as pollsters and advisors suggested to Dion, the best time to propose a carbon tax shift is after an election. Yale economist Robert Shiller observed recently, “Candidates cannot try interesting and controversial new ideas during a campaign whose main purpose is to establish that the candidate has the stature to be president."
Economists are virtually unanimous that pricing carbon emissions is an essential first step toward a low-carbon economy; and their consensus that price-based policies like a carbon tax are much more effective than quantity-based proposals like cap-and trade is almost as strong. For some time now, leading scientists such as Canadian geneticist David Suzuki and NASA climatologist Dr.James Hansen in the U.S. have been warning of tipping points that will trigger global climate catastrophe, and urging nations to adopt carbon taxes as the most immediate and effective policy tool available to change direction. Hansen urges, simply, “tax polluters, pay people.”
The Carbon Tax Center is organizing a Capitol Hill briefing on the morning of Dec. 9 that will feature Dr. Hansen and economists Gilbert Metcalf and Robert Shapiro. (Details will be posted here shortly.) The briefing will also offer insights to U.S. policymakers on using the experience in Canada to frame and sell a carbon tax here.
The economy will be the Obama administration’s first priority. Not only is a gradually-increasing carbon tax on coal, oil and gas producers and importers the most effective medicine for a fevered “planet in peril.” In addition, direct distribution of all the revenue to individuals would provide “stimulus checks” where they’re needed most. Alternatively, a carbon tax “shift” offers “a double dividend” by reducing greenhouse gas emissions and improving the overall efficiency of the economy by reducing taxes that discourage employment.
Either way, the time for effective and economically-stimulative climate measures is now.
Photo: Flickr / Antony Pranata.
Making the case for a carbon tax:
The latest economic downturn has unearthed three new reasons that a carbon tax is preferable to cap-and-trade: Additionality, instability, and the undercutting of success.
1. Much of the focus on carbon offsets is on "additionality", the concept that some reduction is made "in addition" to the baseline that would have been made in the absence of caps. However, we have seen a massive decrease incarbon emissions in the past month or so (and expect to see more in the near future). Clearly, these are not additional (as they have been made in the absence of caps), but there is no easy way to define a carbon offset so as not to include such market cycles.
2. I have read articles recently that current credit situation might make it impossible for businesses to have the money to spend on carbon cutting. However, I feel that a larger problem is that the current decrease in the price of fossil fuels makes it hard to justify spending on carbon cutting. Furthermore, even when/if fuel prices rise again, it is risky to make business decisions which depend on it staying high. In particular, it could be hard to obtain a loan based on such a business plan.
3. The final nail in the coffin, from my point of view, is that it discourages dramatic reductions. Suppose that I developed a high mileage car, capable of reducing total GHG emissions by 20% (roughly half of all transportation emissions). If I were to produce this vehicle, the value of carbon permits would fall to zero for several years — undercutting any market signal that should favor me. Even if I altruistically priced my car so that it sold anyway, other sectors would have no incentive to decrease their carbon emissions and would soon grow to make up the difference. In other words, the cap, advertised as an upper bound on emissions, is also a lower bound, below which it will not be economically feasible to go.
A carbon tax has none of these disadvantages.
Comment by William Fraser — November 8, 2008 @ 10:44 am
I come to bury the Carbon Tax Shift, not to praise it. I do praise the dividend return (on an essentially count-the-noses basis). Both approaches provide the essential service of reducing regressiveness in taxation. But although the tax shift reduces the cost of hiring employees, it provides little if any relief to the unemployed, the retired and the truly hard-up. (Disclosure: my wife and I are retired, and the stock market do-funnies have impacted us severely.)
That said, I believe what matters most is getting the Carbon Tax implemented. The Canadian experience is valuable, if we can learn from it. Having lived in Mexico for a number of years, I understand the political paranoia and distrust of government that is seemingly genetically programmed into Latins; but Anglos are not entirely devoid of it. Mr Durning’s first point indicates that getting the public to accept that 100% Carbon Tax revenues will be returned is of crucial importance. Not that Mr Durning’s second and third points are also important, but I feel the first is the critical one. And again I return to my conviction that getting the Carbon Tax implemented is more important than its details, which can always be modified subsequently.
Comment by David Collins — November 8, 2008 @ 1:37 pm
If I understand the point my "tocayo" Collins is making, it is that returning all Carbon Tax monies collected to "the people" will make people readier to accept the tax. I doubt it. Let us assume a realistic Carbon Tax is implemented; as fuel prices rise, fuel consumption will fall, regardless of what people think (Durning’s #2). Again, thanks to elasticity, the price of fuel will fall. The gyrations in price and consumption will result in gyrations in "carbon dividend" checks, which will fuel more conspiracy theories than even the Internet will be able to keep up with. On the other hand, reduced payroll taxes will be perceived and appreciated immediately and will not need governmental spokespersons of limited credibility to explain them.
I agree with you completely on one point, Tocayo. What matters is getting the Carbon Tax implemented. Pronto. I feel that this can best be done by selling it as what it is. I suggest everybody keep plugging the Carbon Tax in every conversation, every blog comment, every Letter to the Editor, etc. Just like Cato the Elder ended every speech, regardless of subject, with the now-famous words "Cartago delendum est" (Carthage must be destroyed; it worked; Rome utterly destroyed that city), we should all keep plugging the Carbon Tax.
Comment by David Ocampo G — November 9, 2008 @ 6:05 pm
I am a Canadian and just wanted to comment on the effect that the Carbon Tax issue seemed to have on our election. I know that the Carbon tax was often given as the reason why the Liberals didn’t win, but during the election I didn’t hear a lot of people that were that much against it. I don’t think that the Liberals did a good job of selling the idea and explaining it though. Stephane Dion did not seem to have the ability to capture the imagination of the people although I think he had the intelligence (and certainly a lot more than Harper) to lead the country. And although the Liberals didn’t do well, they were able to keep the Conservatives from having a majority which is what it looked like would happen when we went into the election.
Comment by Aukje Byker — November 12, 2008 @ 7:20 pm
It’s interesting to see the lack of political will for engaging climate change via concrete policies, despite the consensus (even stronger in Canada than here in the US) about the need to address climate change in the abstract. Could it be that discussing any policy pre-election runs the risk of alienating voters vulnerable to spin? The fate of Proposition 8 here in California — and the particular role of church-going people of color in rescinding marriage equality — seems to indicate just how easy it is to pull the wool over voters’ eyes.Another way to meaningfully address carbon emissions would be to upgrade the nation’s infrastructure. For instance, building a high-speed inter-city passenger rail network around the country could both (a) dramatically reduce our greenhouse gas emissions footprint, while also (b) helping pull the economy out of the current depression. There are many paths up the proverbial mountain, so maybe the best electoral strategy is for candidates to highlight climate change in the abstract and then test which among the various strategies are best received by the electorate.
Comment by Shahid BUttar — November 13, 2008 @ 2:37 pm
Yes, William, lack of "additionality" and limited incentives for more rapid reductions are potential flaws of a cap that a tax would avoid. Some economists suggest that efficiency improvements below a cap would mostly reduce permit prices instead of leading to emissions reductions. Under a straight carbon tax, the incentives (and rewards for reductions) are continuous.
David C., I agree, a direct "dividend" has great political appeal. On the other hand, using carbon tax revenue to reduce (or raise the threshold for) payroll taxes that discourage employment would be a badly-needed employment stimulus.
David O., We don’t expect carbon dividends would "gyrate." As the tax rate went up as we propose, they’d go up, too.
Aukje, Thanks for confirming that the Green Shift has support in Canada even if Dion didn’t gain seats. British Columbia’s carbon tax looks like a good model for the rest of the world, and we hope Canada will take up the proposal again. And yes, Dion and the Liberals deserve credit for holding down the Conservatives’ seat totals.
Shahid, After we take what economists agree is the absolutely necessary step of pricing carbon emissions, then yes, there are many ways up the mountain. It’s very long and steep and will require all the best "gear" we can get — including, as you note, a shift to efficient public transportation. But carrying something as cumbersome and unstable as a cap-and-trade program might mean we don’t make it. A revenue-neutral carbon tax is just a lot lighter and smoother.
Thanks to everyone for thoughtful comments. Keep ‘em coming!
Comment by James Handley — November 13, 2008 @ 7:22 pm