A Carbon Rhetoric-Neutral Tax
Unreality plagues discussions of global warming. Since the late 1980s, world leaders have announced a succession of ever-tightening emission targets attached to ever-receding deadlines with ever-weakening intentions of meeting them
by Ross McKitrick
At September’s APEC summit, Prime Minister Stephen Harper proposed a 50% emissions cut – but not until 2050, long after his government will have gone. Shortly thereafter, a federal analysis showed that the Conservatives’ “Turning the Corner” plan will be just as ineffectual as the Liberal plans that preceded it (despite being substantially costlier to the economy).
Environmentalists make the unrealistic claim that Canada could drastically reduce carbon emissions at little or no cost, therefore (they conclude) we should embrace deep Kyoto-style targets. If they are right, a low carbon tax would be a sufficient incentive to get us to the target. Yet if you actually suggest a low carbon tax, they object that it would be ineffectual, since firms will only cut emissions under a high carbon tax – effectively conceding that carbon emission reductions are in fact very costly.
Unreality also plagues the discussion of the scientific basis. Large-scale assessment reports like those from the Intergovernmental Panel on Climate Change (IPCC) and the U.S. Climate Change Science Program (CCSP) are routinely invoked as an inerrant authority by people who never actually read them, let alone the literature they are supposed to summarize.
What do these reports tell us? Both conclude that if greenhouse gases drive global warming, there will be a unique signature on the atmosphere in the form of a strong warming trend about 10 miles over the equator, in the so-called tropical troposphere. Only greenhouse gases will do it, and the warming up there will be earlier and stronger than warming at the surface. If carbon emissions really drive climate change, models show the trend should already be well underway.
So it is noteworthy that the IPCC report examined 25 years of data from weather satellites and weather balloons, and found no evidence of a significant warming trend in the tropical troposphere. The average temperature has drifted upwards since 1980, but not beyond the bounds of natural variability. The CCSP noted this too, and pointed out that the models showing the greatest agreement with observations are those that have the lowest amounts of warming.
So let’s pose the big “What if.” What if Al Gore and all those jet-setting celebrity activists are wrong? What if carbon dioxide is not the environmental threat it has been made out to be?
The trouble with the new greenhouse gas policies coming from the federal and Alberta governments is that they only begin to make sense if the alarmists are right. They still don’t make much sense, but if the alarmists are wrong, the policies are truly misguided. I believe we should look for a policy that makes sense no matter who is right.
We have daily data on the mean temperature in the tropical troposphere. Suppose we implement a low carbon tax with the revenue recycled locally. And suppose we calibrate the carbon tax rate to the temperature measure. Call it the T3 tax, for tropical tropospheric temperature. If the mean tropospheric temperature starts going up, the T3 tax would go up, forcing emissions down. If the tropical troposphere does not warm up, the tax won’t go up, nor should it. Alarmists and skeptics alike would expect to get their preferred outcome.
I have spelled out the research behind this proposal in some essays available at ross.mckitrick.googlepages.com. Economists have shown that choosing a carbon price, rather than a cap, minimizes the economic costs of whatever emission reductions are achieved. The T3 tax would build long-term expectations about future climate change into today’s decision-making. Someone building a pulp mill or a power plant would have to get the best information available about climate trends for the next 10 or 20 years, in order to project the carbon price they will face.
This will create a market for accurate climate forecasts, injecting a dose of reality into academic studies. It will also mean that the policy outcome is rooted in reality. Whether the tax forces emissions down or not will ultimately depend on whether greenhouse gases are a problem. We will end up with the right outcome, without having to guess in advance what the right policy is.
Between the Lines is a guest column about current affairs topics that touch on business in the province.
Ross McKitrick is an associate professor of economics at the University of Guelph, where he specializes in environmental economics
Follow Alberta Venture On: