I call B.C.’s new fiscal framework “CT2”: carbon tax and cap and trade. These new-sounding policies are not so new, and, based on our experience, British Columbians should be very concerned.
B.C.’s carbon tax is simply the latest of many pollution-discharge fees the province has charged industry for more than 20 years. The fee system was originally touted as a way to reward industrial plant owners who voluntarily cut any taxed pollutants. But plant operators have rarely seen sustained reductions in their tax bills, even after they cut discharges. That is because the province’s environmental protection costs must be “self-financed” through the pollution-fee system. Since the costs of monitoring and enforcement increase over time, so does the ministry of environment’s pollution-fee revenue requirement. Pollution-discharge rates are similar to mill rates for property taxes. Property assessments can fall, but do property-tax bills also fall? Rarely. So it will be with the carbon tax.
“Cap and trade” is a fancy name for a quota-based supply-management system for carbon-intensive commodities such as fossil-based energy, cement, aluminum, food products, pulp, paper and building products. It works the same way as B.C.’s existing milk, cheese or fishing quota systems, or city taxi-licensing systems. As in all such markets, once the quota supply cap is set, it’s a zero-sum game. If the premier wishes to allocate surplus quota to Company A to incent the company to invest in B.C., he has to reduce the quota available to the other companies covered by the quota cap. If he wants to open up the north for more energy production, he has to force other B.C. manufacturers either to shut down or to buy California quota in order to retain their right to operate plants in B.C.
Corporations will be permitted to hoard, bank, lease or sell their B.C. carbon-emission production rights to the highest bidder. When they export B.C. carbon quota, they permanently export B.C. jobs because the province’s carbon commodity production capacity has to permanently shut down.As in every supply-managed commodity market around the world, market power will soon be concentrated in the hands of a few deep-pocketed corporations, which will, in turn, charge B.C. plant owners high carbon-quota lease rates. As quota lease costs increase, so does pressure on B.C. wages.
It is obvious to me why large corporations with dominant global market shares would favour CT2 over other policies the premier might propose to mitigate greenhouse gas emissions. Under CT2, B.C.’s largest carbon-emissions producers are exempt from the carbon tax and will be well positioned to corner B.C.’s carbon-quota market. For small manufacturers, however, the carbon tax is simply an income tax they have to pay even in years when they lose money. These small-market players – who account for 80 per cent of B.C. jobs – do not get a carbon quota allocation and can’t afford to play that game anyway.
This is why manufacturing employment has fallen 20 per cent faster than it otherwise would have in nations that introduced CT2-type policies before us, and why manufacturing-sector productivity – the value of output per dollar of production cost – in these sectors has also fallen by some 30 per cent.
What I don’t get is why B.C.’s legislators are even considering it, especially when history demonstrates there are more efficacious ways to incent the market to address pressing environmental concerns. We did not tax or use quota to manage lead out of gasoline, sulphur out of diesel, or chlorofluorocarbons out of refrigerants. We teamed up with other regions to impose point-of-sale product-quality reporting and performance standards, then stepped back and watched the market compete to deliver compliant products at least cost.
The most innovative market players – sometimes even small companies – can score big wins in markets regulated by point-of-sale product standards, while deep pockets take all in CT2. How much of B.C. manufacturing is going to be lost before B.C. legislators come to recognize this reality?
Aldyen Donnelly is president of WDA Consulting Inc. and the Greenhouse Emissions Management Consortium.