The Cynicism of Revenue Neutral Carbon Taxes

Travis Fast

Don’t get me wrong I am no fan of Cap and Trade.  I like the Cap but think the trade part is silly because it is inefficient and easy to game.  But revenue neutral carbon taxation seems even sillier here is why.

To get to revenue neutrality the government has to find some way to get the money back to consumers.  To wit the Liberals have promised to:

(1) “put a price on carbon so polluters will pay”

And

(2) “have every dollar raised from carbon pollution go back into the pockets of Canadians through income tax cuts.”

So let us do the math -10$ for filling up that SUV +10$ in income tax cuts = how much out of pocket for the consumer?  Answer 0$.  So where is the disincentive to drive that SUV?  The problem seems to be that Dion is promising revenue neutrality for the consumer instead of behaviour (choice) switching incentives.  For Dion’s plan to make any sense it must mean that money is going to be taken from users of carbon and given to those who use less.  How that can be achieved through the income tax system I have no idea.

How might a good plan work.  Tax carbon and use the revenue to support only carbon reducing behaviour (choices) such as driving fuel efficient cars, removing the GST on bicycles, Federally subsidising transit structure and, beefing up rural transit systems, instituting a rural tax rebate, meaningful rebates for the use alternative technologies and lots of money for R&D.  Through such a program SUV owners would be punished and cyclists would be rewarded.  Such a plan would be revenue neutral insofar as the money raised from an environmental tax would only pay for environmental programs.

The notion that the massive changes we need in the way we generate, store and use energy can be financed on a revenue neutral basis is wishful thinking (especially through universal income tax cuts).  The real question is how to maximize the upside and minimize the downside.  Make no mistake a true environmental programme is no less than big new national social program which is going to cost money.

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