A carbon tax is a far more effective means of shifting to a green economy than a cap-and-trade system, and Canada should follow this route if it wants to compete in environmental technologies, a top British academic and policy adviser says.
Paul Ekins, director of Britain's Green Fiscal Commission, told The Globe and Mail's editorial board yesterday that deciding how to cut greenhouse gases is one of "the toughest public policy calls" that governments have ever had to make, but if done right it can create huge opportunities.
"Those countries, regions or jurisdictions that develop the low-carbon technologies first, and are savvy about marketing them, will be the winners," said Mr. Ekins, who is also a professor of energy and environment policy at University College in London.
He said Ontario, which has a new Green Energy Act that promotes renewable-power projects and forces some procurement to be done in the province, clearly understands the value of a low-carbon economy.
One thing that is missing in Ontario and most of the rest of North America, however, is a set carbon price. A tax that sets a specific cost for generating carbon "will give the message right through the economy," he said.
Levying a carbon tax provides a broad incentive to reduce emissions and create all kinds of green technology, he said, while providing price certainty that companies - and investors - can use in long-range planning.
So called cap-and-trade systems, where companies sell "credits" if they exceed their carbon-reduction targets, are far less effective, he suggested. One key reason is that the carbon prices that result are unpredictable. That means "low-carbon entrepreneurs" cannot use the value of carbon to raise money because investors can't bank on it.
At the same time, the administration of cap-and-trade systems is subject to pressures which ultimately lead to exemptions and political manipulation, he said.
Mr. Ekins praised British Columbia's broad-based carbon tax, implemented in 2008, as a breakthrough on this continent. It "has been done very intelligently, setting in place a low price to start with and then ramping it up over time."
He noted that Gordon Campbell's Liberal government in B.C. managed to stay in power in the May, 2009, election, despite the new tax regime. That demonstrates that such a tax can be politically palatable, even if it is not wildly popular with businesses.
Mr. Ekins is also impressed with B.C.'s plan to merge its carbon tax with any cap-and-trade system that may be put in place by the federal government.
While the B.C. carbon tax is revenue neutral - it lowered other taxes to compensate - carbon taxes could help governments that are in financial stress raise money for investments in green technology, he said.
Mr. Ekins noted that the oil sands poses a huge problem for Canada in developing a low-carbon economy. "If you are going down the low-carbon economy route ... and carbon emissions are increasingly going to be priced, then a very high-carbon industry such as the oil sands begins to look more like a liability than an economic asset."
A carbon tax would provide a strong incentive for developing carbon capture and storage technology for the oil sands and other high-emission industries, he said.