Business·Analysis

Trudeau gambles Canadians will take the long view on climate: Don Pittis

Skeptical Canadians may have trouble voting for short-term pain, but the Trudeau government thinks it can win on carbon pricing.

But he will be fighting the power of laissez-faire economics and short-term thinking

Carbon tax opponents like Ontario Premier Doug Ford have warned that carbon taxes will raise the price of gas and will cost families an extra $260 a year. (Mark Blinch/Reuters)

When Prime Minister Justin Trudeau threw down the gauntlet with his national carbon plan in Ontario Premier Doug Ford's riding yesterday, the word "tax" did not pass his lips.

With talk of "incentives" and euphemisms such as "a regulatory charge on fuel" Trudeau began what is widely seen as a plan to make fighting climate change a key issue in fighting the next federal election.

But whatever it's called, the Liberals could face an uphill battle against the economic and political forces of short-termism that behavioural economists say guide the decisions of most Canadians.

Don't say tar — or tax

As someone old enough, and nerdy enough, to have used the term "tarsands" before it picked up its negative baggage and been forced to change, I fear I may soon find myself in the same position on carbon taxes.

But for many of us who have been steeped in resource economics for decades, in pollution pricing, "tax" is not a bad word. To most economic thinkers, carbon taxes forces us to take account of something that will come back and bite us in the end.

Just a few years ago, before the recent conservative backlash against carbon pricing, the carbon tax was celebrated by politicians who understood it as a clever economic tool that would smoothly and painlessly aid in the transformation to a low-carbon economy.

As this Wall Street protest banner by environmentalists shows, you only use the term 'tarsands' if you're against it. Can we expect the same for carbon 'tax'? (Amr Alfiky/Reuters)
  

But as Ford and other conservative-leaning premiers weigh in against carbon taxes — just as President Donald Trump has done south of the border — it is not at all clear that putting a price on carbon will be an easy political win.

In trying to convince Canadians to think decades into the future, and accept short-term pain for long-term gain, Trudeau's Liberals will come up against the twin obstacles of behavioural economics and the principle of laissez-faire, both of which stand in opposition to planning for the very long term.

'I'll be dead soon'

"It is known from behavioural economics research that people are often driven by short-term gratification — that is, people tend to choose the immediate, albeit smaller reward," says a scientific article on the psychology of economic decision-making.

In behavioural economics, based on experiments that show we fail to follow the "rules" of standard economics, it's hard to trace the evolutionary logic that has led us to accept a small reward now rather than a larger reward later.

Perhaps it is because when humans were evolving the complex set of internal rules that now govern our impulses, people who waited too long died before getting their reward.

"Climate change? That's a you problem," says a woman addressing potential voters in a humorous video that tries to convince young Americans to take voting seriously, "I'll be dead soon."

Those who think climate change is fake news are welcome to add their comments below. But if you trust the view of the vast majority of scientists who insist that climate change will eventually bring economic ruin to vast swaths of humanity, then an Ontario government news release promising the financial benefits of doing nothing certainly proves the behaviourialists' point. 

"Eliminating carbon taxes will save the average family $260 per year and help reduce gas prices by 10 cents per litre," says the release from the Ontario Ministry of the Environment, Conservation and Parks. 

The fact is, humans, as well as wanting our rewards now, are in general very poor at planning for future crises. While almost everyone would certainly escape from the path of a flooding river, people commonly build in low areas known to flood every few decades despite the inevitable future cost.

Most people fail to save for retirement unless forced, even when the alternative is an old age of misery. Even on a shorter time scale, people commonly refuse to evacuate homes in front of a hurricane, having to be rescued after the fact.

Have it all now

But in their latest campaign, the Trudeau Liberals appear to have enlisted the help of their own behavioural economists.

"We will send a climate change action incentive directly to Canadians to help them adjust to an economy in which pollution is no longer free," said Trudeau yesterday.

Prime Minister Justin Trudeau speaks to the media and students at Humber College regarding his government's new federally imposed carbon tax in Toronto on Tuesday, October 23, 2018. (Nathan Denette/Canadian Press)

Short-term thinkers afraid of losing Ford's $260 will get a cheque for $307 to cover the cost of the carbon tax in advance, rising to $718 by 2022. The long-term benefits of saving the planet from destruction are tossed in for free.

While such a strategy could bring some voters onside, business groups opposed to the carbon tax may be harder to convince.

The principle of laissez-faire — the free-market idea that business does best without government interference — has proved itself to be a winner in the past. Of course, that argument is ignored when the government interference involves things like bailing out a pipeline with taxpayer cash.

But if the voters can be convinced, economists insist that businesses, by necessity, will learn how to be just as successful within the new carbon tax regime. Oops — I mean carbon pricing system.

Follow Don on Twitter @don_pittis

About the Author

Don Pittis

Business columnist

Don Pittis was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London. He is currently senior producer at CBC's business unit.

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