The most obvious problem with the Green Shift proposed by Stéphane Dion is that the Liberal party plan will not reduce greenhouse gas emissions significantly, if at all. The hidden assumption is that if the new carbon tax works, it will reduce the revenues available to the federal government (i.e. for needed investments in green energy). The biggest shortcoming is that the Liberal Green Shift relies on market pricing to fix a massive market failure that threatens the extinction of the planet.

Market economics relies on prices to influence quantities produced. Increase the price of emitting greenhouse gases, and at some point people will reduce their consumption of products producing greenhouse gases. The Liberal Green Shift proposes to tax consumption of carbon, technically carbon dioxide-equivalent emissions. It sets out to establish through a consumption tax (paid at the wholesale level) a market value for carbon at $10 a tonne, rising to $40 a tonne in five years.

Eventually people who do not like to pay the tax increase will find ways to reduce their consumption of energy. The tax is a disincentive to consume or, symbolically, a small stick to beat us as we heat the atmosphere.

To put the Liberal plan in perspective, Canadian Centre for Policy Alternatives economist Marc Lee calculates that the increase in petroleum prices amounts to a $300 per tonne price increase in the price of carbon. Lee points out that this increase has affected consumption of fuels and will eventually have a major effect on carbon emissions as people decide high oil prices are permanent.

Next to $300 a tonne, the Liberal $10 a tonne tax (moving to $40 eventually) looks to have little effect on carbon emissions. It represents an important symbolic shift, but one that is fully backed by oil companies, and major business groups, so long as new carbon taxes are revenue neutral (i.e. other taxes are reduced simultaneously).

By shifting to a regressive consumption tax on carbon, and away from our moderately progressive income tax, the Dion plan increases income inequality. Simply put, as a percentage of your income, by decreasing income tax, and increasing reliance on a flat consumption tax, the more you have the less you pay, and the less you have the more you pay. Recognizing this effect, the Green Shift proposes compensation for families with children, employees, and those at the lower end of the income scale.

What the Green Shift does not set out is that by reducing the role of the progressive income tax, and shifting to consumption taxes on heating fuels (while maintaining existing taxes on gasoline), if the carbon tax ever does have the desired effect, and consumption of energy decreases (more likely because of oil price increases), so will the tax revenue of the government. Instead of being revenue neutral, an effective carbon tax will reduce government revenue eventually, so why not recognize this from the outset and maintain the progressive income tax?

The Green Party carbon tax shift released June 18, the day before the Liberal plan, at least proposes in part to replace one set of flat taxes, payroll taxes, with another, a carbon tax.

The best part of the Liberal Green Shift is that Dion has called for an adult debate on a real problem, planet threatening greenhouse gas emissions. Canada needs to have that debate. Personal attacks on other party leaders weaken democracy. Shouting falsehoods about a tax grab as the government has done, probably rules out the Conservatives from participating seriously in national discussions, but such debates can go ahead, with or without Stephen Harper.

Kairos has pointed out that emissions to come from Alberta tar sands production alone will outpace greenhouse gas reductions expected from Conservative government regulation of all consumption.

The Conservatives are framing the reduction of carbon emissions as an east versus west debate. Undoubtedly, this helps them obscure the real issues of what needs to be done. Instead Canadians are supposed to point fingers at each other from wherever they happen to live, and blame emissions on regional differences.

But the Liberals, the Greens and everybody else who thinks that market signals will save the planet need to think again. The only sure way to reduce greenhouse gas emissions is to put hard caps on major polluters. Instead of waiting for the market to make up its mind to reduce production of greenhouse gases, legislators need to specify strict greenhouse gas limits through regulation, policing and harsh penalties. In addition governments need to invest new money in conservation and alternative energy production. These measures, not revenue neutral consumption taxes, would be the real green shift.

Duncan Cameron

Duncan Cameron

Born in Victoria B.C. in 1944, Duncan now lives in Vancouver. Following graduation from the University of Alberta he joined the Department of Finance (Ottawa) in 1966 and was financial advisor to the...