Chris Ragan is director of the Max Bell School of Public Policy at McGill University and chair of Canada’s Ecofiscal Commission.
Canada has a rich tradition of thievery – and it’s a good thing we do. Much of our success comes from adopting sound policies that have already proven successful elsewhere.
We implemented employment insurance in 1935, a full 15 years after it was introduced in Britain. We achieved universal health care in the early 1970s, a decade after many European countries. We adopted the GST 25 years ago, following a global trend toward “value-added taxes” that was already mature by the time we came on the scene.
The same is true of carbon pricing. It may be a contentious policy in Canada today, but there is nothing Canadian about carbon pricing; we introduced it here precisely because it works so well in other countries.
It should not be surprising that some Canadian provinces adopted carbon pricing 15 years after the first systems appeared overseas. Not only is putting a price on pollution – any kind of pollution – the most efficient way to clean up the environment, it’s an old, proven idea that prioritizes the power of markets over the power of government.
Compelling evidence comes from two of the planet’s oldest pollution-pricing systems.
Sweden has the world’s highest carbon tax, and introduced it in 1991. It took some tinkering, but the Swedes ultimately got it right. Economists estimate that just five years in, the carbon tax had reduced Sweden’s emissions by 15 per cent relative to business as usual. Since 1995, Sweden’s total emissions are down by 25 per cent, emissions per unit of GDP are down by 65 per cent, and its economy has expanded 12 per cent faster than the EU average. So much for the idea that carbon taxes kill economic growth.
How exactly did Sweden’s carbon tax work to reduce emissions? One significant shift came from how its buildings are heated. Sweden uses district heating, where central units provide heat to entire blocks and neighbourhoods. Carbon taxes made biomass cost competitive with fossil fuels, and its use in heating quadrupled in just five years.
Another successful example of pollution pricing comes from the United States. Prices don’t just work for greenhouse gases; a price on any type of pollution can work, as long as it’s well-designed. Remember acid rain? It didn’t disappear on its own. The United States set up the world’s first cap-and-trade system in the 1990s and eliminated the problem in less than a generation.
Once 3,200 American power plants had to pay for their sulfur-dioxide emissions, they quickly came up with creative ways to reduce their emissions and avoid those costs. They rerouted rail cars to gain access to different types of coal and then experimented with them to produce fewer emissions. They also invested heavily in “scrubbers” that pull sulphur dioxide directly from the exhaust stream.
The U.S. policy was a success by any measure. After 10 years, sulfur-dioxide emissions had declined by 36 per cent, even though coal production had risen by 25 per cent. The program more than paid for itself and saved billions of dollars compared to less flexible and more intrusive regulatory approaches.
Now back to Canada. As we enter the federal election season, Canadians should ask themselves: how best should we reduce GHG emissions to fight climate change?
Do we demand that everyone pollute less by imposing regulations that intrude on the details of their lives and businesses? Do we coax everyone into polluting less by bribing them with subsidies financed from their own tax dollars? Or do we use carbon pricing to create economic incentives that let households and businesses figure out for themselves how best to respond?
Economists know the more we lean on carbon pricing, the better off our economy will be. Other countries are seeing this, too. China’s carbon market launches next year; India is piloting cap-and-trade; and France and Germany are breathing new life into the European conversation. If Canadians want to shrink emissions as cheaply as possible, we should embrace the power of markets.
Putting a price on pollution works around the world. It’s about time Canada stole another good policy idea.
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