Welcome to the Carbon Tax Ticker

While the pandemic-induced economic coma has caused energy demand to plummet, calls for a carbon tax have surged. It’s no coincidence.

“The R Word”
New York Times, April 28, 2020:

“I accept the fact that this is an emergency,” said G. William Hoagland, the former top budget expert for Senate Republicans. “My problem is, we should have been fixing the roof when the sun was shining. But we didn’t.”

Mr. Hoagland, who is on the board of the Committee for a Responsible Federal Budget, was referring to the period before the outbreak, when the economy was booming and the deficit was already projected to skyrocket to an estimated $1 trillion for 2020.

To Mr. Hoagland, the answer is clear, particularly since demand for economic aid for both individuals and businesses is not likely to dissipate any time soon, with some calling for elements of the rescue package to be made permanent. He is already throwing around the “R” word.

“We are just going to have to belly up to the bar and admit there is going to have to be more revenue,” said Mr. Hoagland, who raised the possibility of a carbon tax as one avenue to generate new federal income. “We have to start paying for this in the current world, and not just throwing it off onto the future generations.”

IER’s Take

Some carbon tax opponents say that the carbon tax isn’t really about solving climate change. I’m not among them; I think there’s a significant cohort of analysts who genuinely think a tax will rearrange the global economy and limit atmospheric concentrations of greenhouse gases.

Then I see someone like G. William Hoagland.

Hoagland is the type that gives full justification to the skeptics who doubt any taxer is being forthright. He’s openly suggesting a carbon tax here not because it would deter emissions, but because it would fill government coffers. We’ll have this one filed away for future reference.

“Establishing a carbon price in the midst of an economic shock”
Niskanen Center, April 14, 2020:

As was true before the pandemic, and will be after, the best option for efficiently providing such certainty would be a carbon price, likely a tax. Other regulatory interventions, such as stronger EPA enforcement, sector-by-sector performance standards, or cap-and-trade systems require large administrative burdens and do not have the ability to raise revenue. The revenue from a carbon tax could be particularly attractive in the coming years, as there will be an appetite to balance the fiscal picture after years of massive spending. Carbon tax revenue could also be used, long-term, to continue making investments in infrastructure and innovation in the wake of the stimulus spending.

Establishing a carbon price in the midst of an economic shock is counterintuitive, but committing to one would be wise. One option would be for Congress to pass legislation to levy a small and rising carbon tax that would take hold as the recovery proceeded. On the lee side of this crisis, a carbon tax which started low and increased over time would add pennies to the price of a gallon of gas and be no real impediment to economic growth. Even before it was collected, the expectation of the tax would affect how investors and firms went about financing the economic recovery.

IER’s Take

On April 6 I had a piece at FEE on oil tariffs. A portion of my first draft addressed carbon taxes, but it was left on the cutting room floor. Here’s what I had to say in that first draft when the tariff idea was making the rounds a month back:

“Similarly, it’s in this unforeseen price context that carbon tax proponents see an opportunity. With prices so low and public attention devoted to virus response, carbon taxers find a favorable policy landscape before them for the first time in years. When prices are high, a country with as many cars as people does not respond kindly to energy price hikes, but with prices depressed as they are, the carbon taxers wonder if people will even notice.

One idea floating around the Twittersphere is to reduce the payroll tax now, then use a carbon tax to backfill revenue. This idea is of a piece with the perennial case made for a so-called carbon dividend, i.e., a lump-sum check cut to Americans from carbon tax revenues. But Americans should not be deceived, crisis relief is not contingent upon taxing energy.

In this spring of tumult, major shifts in policy will come quickly, but we would be naïve to expect them to fade with the changing of the seasons. To implement an oil tariff or a carbon tax now potentially could burden Americans for years to come with onerous, distorted prices on their everyday energy needs, like home heating, electricity, and transportation.”

Lo and behold, the Niskanen piece excerpted above made essentially that play on April 14.

“A worrying misunderstanding”
Calgary Sun, April 6, 2020:

Last week, Prime Minister Justin Trudeau announced that his government will proceed with its planned 50% carbon tax increase, ignoring the fact that many Canadian industries are struggling mightily due to the COVID-based recession.

During a recent press conference, he said the federal carbon-pricing system, which includes annual rebates to Canadians ranging from $300 to $600, has been designed to “put more money in household pockets.”

This justification reflects a worrying misunderstanding of the nature of this recession and the solutions needed to recover. Stabilizing income for families and businesses is vital for the economy to recover, but transferring income (in this case, carbon tax rebates) to households to “stimulate” spending is not an appropriate response given the source of the economic crisis.

Policymakers must recognize that Canada’s carbon tax comes with higher costs and serious competitiveness risks for many industries. Increasing the carbon tax rate amid this economic crisis, as companies struggle to remain solvent, is a misguided move. Simply put, this is not the time for carbon tax-induced cost increases on Canadian industries.

While the duration of the pandemic is unknown, the federal government will need to focus on incentives to restore supply and get Canadians back to work. This means opening supply chains, reopening trade routes and crucially, ensuring competitiveness so Canada is seen as a stable place to invest.

IER’s Take

This op-ed from our friends at the Fraser Institute is on the mark. As the world economy claws its way out of this trough, Canada will find itself behind the eight ball thanks to Prime Minister Trudeau’s carbon tax increase.

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