May 31, 2011

Horse 1195 - The Carbon Tax Will Hurt Families... Duh!

Labor and the Greens want it; the Liberals are too chaotic to decide if they want it; the European Union has had one in place since 2005 and in Canada, Stephen Harper has been returned as PM by running a campaign of railing against it. So then, what is the point of a Carbon Tax anyway?

Whether or not you call it an Emissions Trading Scheme, a Carbon Tax or a direct price of carbon emissions, whatever form the proposed tax takes will ultimately be resolved through the operations of the market. Just like a tax on Cigarettes, Alcohol or Petrol, the whole point is that the tax is essentially a punitive one for the simple reason that unless the system is either punitive to discourage certain behaviours, or incentivised to encourage other behaviours, then there is no motive for the market to do anything whatsoever.

Let me put this another way. When the price of oil goes up, oil companies merely raise their prices. If the tax on petrol goes up, oil companies merely raise their prices. Either way, oil companies don't chuck a massive whinge because of the operation of market forces, all that happens is a shift in prices.
If a Carbon Tax is introduced, then it makes little difference upon whom it is imposed. If it is imposed on the "big polluters" then they'll pass that on with higher prices. If it is imposed on consumers directly, then that also results in higher prices. It really makes three-quarters of diddly-squat who the tax is imposed on, a punitive tax will raise prices.

So called "sin" taxes have another name, namely a Pigovian tax. An economist called Arthur Pigou published several papers; one of them being on the subject of "negative externalities", or costs which are not transmitted through the mechanism of price.
A good example of an externality is that of traffic. If car owners use the roads, they impose costs to other drivers through increased traffic flow, leading to congestion and other costs like increased insurance premiums because of higher accident rates.
A Pigovian tax in this case would be to raise the tax on petrol to discourage car usage.

This argument that imposing a Carbon Tax will raise prices and "hurt families" is to state the obvious. DUH! That's the point!
The whole point of a Carbon price is to change people's behaviour. Carbon Pollution is a negative externality as a result of producing goods and services, so it's ultimately the consumer's fault anyway for buying goods and services in the first place.

What is the alternative? Merrily going on to create an even bigger externality of things like rising sea levels and flooding, the total destruction of people's homes, farms and livelihood, and even weirder weather leading to greater food insecurity, famines and wars?
It seems to me that a punitive tax as a means to let markets sort out the problem is only the first in many steps and whilst political parties of all colours dither and do nothing, it brings the deadlines only ever closer.

People and corporations will not generally change their behaviour unless acted upon by an outside force. A classic example of this is the Triangle Shirtwaist Factory fire (look at the link, it's scary). Because there wasn't any incentive to provide adequate fire escapes in the building, no-one did so and as a result 146 people were trapped inside the burning building and died.
I'm not prepared to debate whether or not climate change is or isn't caused by humans, the point is that it does exists and is caused by humans, and if you don't agree you are an idiot, pure and simple.

Something has to be done. The point of a Carbon tax in whatever form it takes will hurt the consumer, because if it doesn't, nothing will be done at all.

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