Your Interview

Which household expenses will be most effected, and are there any choices that households can make to avoid those "industries" that will be most likely to pass on the carbon taxes to consumers?

Ross McKitrick: A carbon tax will fall most heavily on coal-powered electricity, then on oil- and gas-generated electricity and other industrial processes that use fossil fuels. Sectors that tend to experience the largest price effects in past simulation work for the federal government are ones like oil&gas production, mining and pulp and paper. Eventually those costs get passed through.

The most immediate effects are on gasoline and electricity. Regions that use a lot of fossil fuels to generate electricity will see those costs rise. Even though the tax will not immediately apply to gasoline, it will presumably apply to the energy used by oil producers and refineries, so the production costs will go up. In order to compute all the direct and indirect changes, they need to do some economic modeling work.

A lot was done in the late 1990s and early part of this decade for the federal and provincial governments, through what was called the Analysis and Modeling Group of the National Climate Change Process. Some of those reports will have information that would provide details that people like you are asking about. I would hope the Liberals will make use of that work, or commission new studies, so that people can see what the final cost effects will be.

If the tax hike is to be off set by a tax cut, how does this give any incentive to reduce carbon print? What do you think will be more productive incentive plan?

Ross McKitrick: The tax cut will apply to something other than the emissions, such as income taxes. So while there might be a slight increase in emissions if consumption increases due to an income cut, this will be more than offset by the reduction in emissions caused by the tax itself.

Of the policies available, a direct tax on emissions is the most effective way to reduce emissions at the lowest possible cost. There are lots of ways to force down emissions, but the problem is that most of them cost too much. Using a price instrument like a carbon tax ensures the emissions are reduced at the lowest cost.

Will those citizens who have already taken steps (such as not owning/driving cars) be given credit for such actions?

Ross McKitrick: I doubt it. Your reward will be that less of your household budget is exposed to the tax. It would be bureaucratically impossible to figure out who should get what credits for not taking actions that they might have done.

Seems like creating complexity and buracracy with the carbon tax system, which will result in more cost? Why not tax crude oil at import or source like we charge for water to pay for city sewer service?

Ross McKitrick: In principle a carbon tax can be implemented just by adjusting the rates of existing taxes. We already have a tax bureaucracy, so no new staff or rules are needed. In my view, a simple carbon tax is far less bureaucratic and costly than the cap-and-trade + sectoral regulations + ethanol mandates + ecoAuto rebates + etc etc that the current government is pursuing.

The tax could be applied right at the well-head (or import point) — you are right about that. As long as it is not applied to petroleum going into plastics or other non-combustion uses, the easiest place to put the tax is at the wellhead since we know what the carbon content is and there’s no need to follow it all the way through the production and retail chain.

Why are we not adding a 15% Carbon penalty tax
to the 80% of our crude resources we export
to the needy USA?

Ross McKitrick: At the end of the day you need to let each country set its own environmental policies. We couldn’t target the US alone, it would likely win a WTO case if we didn’t apply the same tax to all our oil customers. An export tax proposed as an environmental regulation would also face a trade challenge if we didn’t apply it to ourselves too.

Can you defend the merits of carbon trading even if climate warming sceptics are correct?

Ross McKitrick: If carbon dioxide has little or no deleterious effect on the climate, a carbon trading system has no merit. CO2 has been unregulated up to now because is it not a pollutant. We regulate sulfur, nitrogen dioxide, volatile organic compounds, particulates, and hundreds of other emitted compounds (see http://www.ene.gov.on.ca/publications/6569e-chem.pdf) that are believed to pose health or environmental threats. But CO2 occurs naturally, is good for plants and is part of our own respiration. So nobody ever thought of regulating it (just like we don’t regulate oxygen or water vapour emissions).

The rationale for controlling it is the concern that CO2 may have a big effect on the climate, and this effect would be bad for us. If this is not true then I can’t see any grounds for incurring the costs of a carbon trading system.

Even if the carbon tax was revenue-neutral, in practical terms, isn't it wasteful to replace one tax (income tax) with two (income tax and carbon tax)? Isn't there overhead and economic inefficiency introduced by every new form of taxation (new government department, extra auditors, more regulation, etc.)?

Ross McKitrick: The tax system already exists, so in principle there is no reason to add staff if all we are doing is changing the rates of existing taxes. If they envision a substantially new reporting and compliance system then you are right that they will add to the administrative burden.

By taxing diesel fuel (beginning in the second year) transportation costs will rise significantly and naturally be passed on to the consumer. Even though it wouldn't be politically wise to levy the tax on gasoline and leave diesel exempt, would not this approach be more effective at reducing GHG emmissions because it would affect most people and many of us do have a choice in what we drive and how much we drive?

Ross McKitrick: Yes, any exemptions weaken the environmental integrity of the tax. By taxing diesel they will certainly increase the costs of trucking, which has an effect on most consumer goods.

The Liberals have already said that they will tariff imports to make sure that Canadian manufactures are not placed at a disadvantage. Does this mean that the carbon tax would be waved on Canadian products made for export?

Ross McKitrick: They will need to specify that, but there is no reason to expempt domestic production of exportable goods. If the fuel consumption occurs here during the manufacture of the goods, the price should be paid here. Also, it would be very difficult to try and identify during the manufacturing chain which widget will be sold domestically and which one will be exported.

I think they will have a lot of trouble applying border taxes to try and protect domestic competitiveness. Trying to calculate what should be taxed and when, in a world where products might be manufactured in 6 or 7 different countries and finally assembled in China is hopelessly complicated.

You can’t look at a crateload of, say, microwave ovens, and figure out how much ‘carbon’ was emitted by each separate country of origin, then adjust for any fees or regulations already imposed within those countries. You’d need a bureaucracy larger than the entire private sector just to try imposing such fees. Otherwise they would be sheer guesswork, and you’d end up in court as trading partners objected to arbitrary tariff levels.

I don't see any financial incentive to curb carbon emissions in this proposed tax. The proposed carbon tax is goint to be offset by income tax reductions. If we then lower the carbon emissions then the carbon tax paid will be lower. Does this not mean that our income taxes will then increase by the same amount?

Ross McKitrick: The prospect of an income tax reduction won’t take away from the incentive effect of the higher energy costs. If you knew you would get your carbon tax money back dollar-for-dollar then the effect would be neutralized. But people don’t get their money back like that. Some people have high emissions per dollar of income, and they will end up paying and not getting it back.

Others have low emissions per dollar of income, and they will get a net refund. So if you drive a long way to a low-wage or middle class job, you will come out worse off. If you walk or cycle to work and make a lot of money, this arrangement will pay off for you.

It seems that if there were no carbon emissions at all, then there would be no carbon tax and our income taxes would be back at their current levels.

Ross McKitrick: Yes there would be no tax revenue, but if we got our carbon emissions down to zero we would not have much income left, since that would mean we shut down all our industries, took all our cars off the road, stopped heating our homes, etc.

Where is the incentive, or am I missing something?

Ross McKitrick: It is a very weak incentive because the tax rate begins so low. The weakness doesn’t arise due to the revenue-recycling (ie income tax cut), it arises because the price is only $10 per tonne. I don’t think that will induce more than a couple of percent emission reductions at most.

CO2 is very costly to control, not like particulates, sulfur and other contaminants that can be controlled with scrubbers and fuel pre-processing.

Our home is heated with electric baseboard heating and we have no other source of heat. How will this carbon tax be calculated on electric bills and since Nova Scotia Power mainly burns coal and oil to generate electricity, will I be paying more than someone else in Ontario who uses more power generated in a nuclear plant?

Ross McKitrick: Yes, Maritime consumers will be relatively worse off since you have higher coal/oil usage and lower average incomes. You will pay a larger fraction of your income into the tax system and benefit less from the rebate. The power plants will have to pay per tonne of CO2 emissions, which is fixed per tonne of coal used. They cannot reduce emissions intensity.

Ontario gets more than half its electricity from hydro and nuclear and Quebec gets most of its power from hydro, so electricity prices won’t go up as much in those provinces.

Don't we already have a carbon tax? This is already a special tax on gasoline as well as GST and PST.

Ross McKitrick: We have fuel taxes, but they are not calibrated to the carbon content of fuel. What this scheme does is reconfigure the fuel tax rates so that they reflect the carbon content — coal becomes highest (per BTU), then oil, then natural gas.

Hello,

I am on a disability pension. I was wondering how this plan would affect my yearly income?

Thanks

Jim

Ross McKitrick: From what I understand it will not affect your income, but would affect your income tax level. If they do actually use the new tax money to reduce income taxes, you would see a small reduction in your income tax burden, to offset the increase in your energy prices.

1) How much warming has taken place and how accurate is this data?

Ross McKitrick: The IPCC Report (http://www.ipcc.ch/ipccreports/ar4-wg1.htm) says that the effect of greenhouse gases will be strongest in the troposphere (approx. 1-10 km up), especially over the tropics. So this is the data I keep an eye on. You can obtain the tropospheric weather satellite data from the University of Alabama-Huntsville at http://vortex.nsstc.uah.edu/data/msu/t2lt/uahncdc.lt

Note these are ‘anomalies’ or differences compared to the 1979-1999 mean.

The globally-averaged trend from January 1979 to the present is 0.13 degrees per decade, and the maximum point in the record is 1998. The tropical region trend is only 0.06 C/decade, which on the face of it does not support the idea that greenhouse gase are having a big effect.

A comparable record is available from Remote Sensing Systems in California here http://www.remss.com/pub/msu/monthly_time_series/RSS_Monthly_MSU_AMSU_Channel_TLT_Anomalies_Land_and_Ocean_v03_1.txt. They are very close to the UAH numbers after 1995 but prior to that they disagree about how some of the early satellites should be calibrated, so their overall trend is higher (0.17 C per decade globally, 0.16 in the tropics). But they also show little warming in the tropics compared to model predictions.

The largest warming trends are observed in surface data sets, such as the CRU series (http://www.cru.uea.ac.uk/). I published a study last year in the Journal of Geophysical Research (http://www.uoguelph.ca/~rmckitri/research/jgr07/jgr07.html) showing evidence that these data are likely overstating the warming trend over land due to, among other things, failure to properly control for urbanization and other land-use changes, and quality control problems in lower-income countries. In my view the UAH and RSS weather satellite series are the most reliable sources for measuring what we are interested in, though they are not without problems of their own.

2) If any significant warming has been noted, has the hypothesis of man as the source been reasonably proven?

Ross McKitrick: The IPCC Report (see esp. Sect 9.1.2) points out that the human role cannot be “proven”. It’s a judgment call based on interpreting lines of evidence. My view is that there are some key model predictions about what the climate should be doing if greenhouse gases were the dominant forcing that we are clearly not seeing in the data. For instance the tropical troposphere should be warming about twice as fast as the rest of the atmosphere (see http://ipcc-wg1.ucar.edu/wg1/Report/suppl/Ch10/Ch10_indiv-maps.html Figure 10.7 for an example of what models predict under greenhouse-induced warming. I don’t see this in the satellite data, which tells me that the IPCC has probably jumped to a conclusion to say that greenhouse gases are very likely the cause of observed changes over the past few decades.

However, it’s obviously a big contentious topic — I have more written on it at http://ross.mckitrick.googlepages.com/ if you want my take.

3) Why are satellites and the AQUA buoy system not finding
a warming trend when so many feel their is warming?

Ross McKitrick: Peoples’ impressions may be influenced by living in or near cities, which have definitely gotten hotter over the past few decades, but not due to greenhouse gases. The buoy data shows a trend over a long interval, but over the past 4 years there doesn’t seem to have been any upper ocean warming (ftp://ftp.ncdc.noaa.gov/pub/data/anomalies/annual.ocean.90S.90N.df_1901-2000mean.dat).

Since the oceans store so much heat, that seems to be a long time to go without any warming. The question then is whether models can simulate multi-year intervals without ocean warming while greenhouse gases are heating the atmosphere.

4) Why are so many world class scientists "Deniers" when the average citizen and politician seem so convinced?

Ross McKitrick: Larry Solomon’s excellent book “The Deniers” provides a good treatment of this issue, though I suspect it will take a long time to really sort out the answer.

Natural gas accounts for more than 90 percent of the total ammonia production cost. Will farmers get a rebate on the price of fertilizer?

Ross McKitrick: My guess is they will not, because once you start trying to give exemptions like that you have to give everyone exemptions. However those kinds of details would have to be announced by the Liberals.

Can you quantify or at least ballpark the expected reduction to global temperatures that this program, if fully implemented, can be expected to achieve?

Ross McKitrick: Wigley, T.M.L. (1998). “The Kyoto Protocol: CO2, CH4 and climate implications.” Geophysical Research Letters 25(13), 2285-2288.

This paper showed that even if all countries had fully complied with Kyoto, the effect on the global climate would be pretty much non-existent. It would delay the date at which CO2 levels double in the atmosphere by about 5 years (i.e. instead of it happening in 100 years, it would happen in 105 years).

In other words, full Kyoto compliance would still have yielded the same outcome. But with the US out of Kyoto and most participants, like Canada and Europe not meeting their targets, the effect is even smaller, ie minuscule. Since this new tax would not even cause Kyoto-size emission cuts, its effects are too small to meaure.

Remember this tax will have a very small effect on Canada’s greenhouse gas emissions; which in turn is only 2% of world greenhouse gas emissions, so it won’t affect the global CO2 level; much less atmospheric temperatures.

What aspects of Dion's plan address the issue of knock-on effects of taxing carbon emissions? (i.e., what estimations are contained within the plan as to how much, say, the CPI would inflate; the function of such an estimation being to compare that with marketplace CPI basket item price inflations & see if there is "punitive inflation" from market actors?)

Ross McKitrick: It is not possible to prevent the knock-on effects. Any new tax will be passed forward to consumers or backwards to income earners. If you try to prevent this from happening (like Quebec did when it brought in a carbon tax) you end up destroying the incentive effect of the tax.

I live in a small town, 100 miles from the nearest city. People in the north such as I, will be hit the hardest by this tax. We do not have alternate sources of transportation that the cities and the south have. We own more trucks in the north, and use natural gas up to 9 months of the year. If we have a fixed income every month, I am wondering how we will be able to afford this tax, when we are not getting raises? A one time check will not pay the bills all year long, and a drop in taxes will not benefit me at all as I only make $10,000 a year. Will we be compensated more in the north, like say, every month?

Ross McKitrick: I believe there is a special refund for northern residents. But for the reasons you cite, your exposure to the tax will be higher than in the south, so the refund may not bring you out even.

how does the Harper's government's planned action on climate change compare to the Liberal's proposed plan?

Ross McKitrick: For all the Conservatives’ complaining, the cap-and-trade+regulation approach of the Tories will be far costlier to Canadians and likely not accomplish any more than the Liberals’ carbon tax. It will be more bureaucratic, and as with the cap and trade system in Europe there will be risks of huge price spikes and panic buying of permits, which for an energy-intensive economy will be a big problem.

Would a Carbon Tax have GST applied to it?
As the Excise Tax on gasoline does.
If so, how much extra GST would be collected?
(My guess is that the 2% reduction we have enjoyed would be wipped out)

Ross McKitrick: I don’t think they have answered this. In principle it should. To figure that out they need to do some detailed policy simulations, which they have not released.

How will Green Shift benefit plans for public transportation and renewable energies when Green Shift is supposed to be "revenue neutral"? To me it seems that we need a "green shift" that generates revenue for such projects as public transportation, subsadies for renewable energies etc. in order to make any significant changes to green house emmissions.

Ross McKitrick: Good point. It’s contradictory to say they are going to refund the money through income taxes, while spending the money on transit and renewable energy. To the extent they do the latter, say goodbye to the former.

Finland, Sweden and Denmark - countries known for their innovative and highly competitive economies and not known to "screw their citizens" (in Harper's words) - have initiated a carbon tax. Are they, as Harper suggests, plain crazy for doing so or does their tax differ significantly from that proposed by Dion.

Ross McKitrick: Keep in mind that a low carbon tax doesn’t do much damage to the economy (as long as the revenue is fully recycled) but it also doesn’t reduce emissions much. Harper’s claim that this tax will screw the consumer is obviously rhetoric, and if he’s really worried then he should recognize that his cap and trade plan will screw the consumer even worse, but there won’t be any offsetting tax cuts to soften the blow.

For the Liberals, they have to realize that they can’t support Kyoto and proceed with this carbon tax, since a low tax on carbon won’t reduce emissions much. They would be a lot more honest if they promoted this carbon tax while also admitting they should not have signed Kyoto, and rescinding their support for the recent Kyoto Protocol Implementation Act.

Good questions everyone, thanks!