Last week, a study about carbon taxes by a group that promotes them, Canadians for Clean Prosperity, got a lot of attention, rather more than one would expect for such the study. 

It wasn’t the claims per se that got the attention, but the one who commissioned the study, Mark Cameron, executive director of Clean Prosperity.

It was news because Cameron was the policy director in the PMO of Stephen Harper. So, the headline was “former senior Harper aide supports carbon tax.” If editors had longer memories, they could have also written “former senior aide to Stephane Dion supports carbon tax.” Yes, Cameron previously worked in the office of the father of the “tax on everything” as his latter employer would eventually call it.

How did I know that? Superior reportorial memory? Not in this case. Mark Cameron and I have been friends for more than twenty years, and are now colleagues at Cardus, where Mark serves on our board of directors. 

So, of course I paid rather more attention to this carbon tax study that I otherwise might have. 

Note that Mark Cameron, on the board of Cardus, makes a thoughtful case for a broad-based, revenue-neutral carbon tax, while earlier in the summer, Cardus hosted Jason Kenney – a friend of Cardus and a friend of Mark’s. Doug Ford put the carbon tax into its coffin this summer; Kenney will hammer it shut next summer. 

I find this divergence of views encouraging. Obviously, those who support Cardus share a broad vision, but disagreements, especially on policy instruments, are to be expected. Cardus, and similar institutions, exist to advance a particular vision but, just as important, are places where the particulars of that vision can be worked out in a spirit of freedom and civility. I haven’t surveyed the Cardus board or staff, but I would expect that on carbon taxation there would be a diversity of views.

The substance of Mark’s report is that if all carbon tax revenue from businesses and households were returned to households, the latter would be better off than if there were no carbon tax. Canadians of all income levels would be better off. That case is sound but depends on several factors.

First, the carbon tax that Mark supports is revenue neutral, meaning that it is intended to change behaviour through changing prices, but not to raise revenues. That’s sound economic thinking. If you want to diminish something, raise its price through taxation. It’s the logic behind cigarette taxes and other “sin” taxes. That’s why Jason Kenney, at the House of Commons finance committee, made the rhetorically powerful retort that heating one’s home is not a sin to be punished by the government.

A “revenue neutral” tax means that all revenues are returned to the taxpayers in some form or another. That was the promise of the British Columbia carbon tax, and the government made a sincere effort to return the revenues. There is some dispute about whether they got the exact amount correct. 

However, next door in Alberta, the carbon tax’s “neutrality” means that the revenues are returned, in part, to lower-income Albertans to compensate for higher energy and other costs, but in large part are spent on what the government designates as climate change measures. So, the carbon tax in Alberta means more government spending, like any tax that goes into general revenues. 

Is a “revenue neutral” tax realistic? Two generations ago the federal government introduced the GST as a revenue neutral tax, aimed only at replacing the revenues from the old tax on manufactured goods. Over time of course the GST became a massive cash cow for the government, so much so that the Harper government slashed it from seven percent to five per cent, partly because it thought the substantial revenues it generated would simply lead to increased government spending. 

Of course, a tax and rebate – “dividend” in the language of the Clean Prosperity study – scheme cannot leave everyone better off. Businesses would not get a rebate on the carbon taxes they pay, which is rather the point. It is their behaviour that the carbon tax aims to modify. So, it is possible that a taxpayer might get a carbon tax “dividend” worth more than he pays in tax, but if the firm that he works for faces higher costs and cuts back on employment, he could certainly be worse off. That argument, writ large, would also have a negative impact on many if economic growth itself slowed.

My general intuition about carbon taxes is that they are the most simple, neat economic instrument to reduce carbon use, if that it is the policy goal. But in a country where the federal government just dropped billions to buy a pipeline it can’t build, or in a province such as Ontario where the green energy plan has made a very expensive dog’s breakfast of the entire sector, the idea that the government is capable of something simple and neat is rather fanciful.

A carbon tax is a “tax on everything.” It is possible that, combined with a “dividend for everyone,” its economic impact will be both mitigated and expertly targeted. But it seems more likely to me that we would get the “tax on everything” with the dividend in doubt. 

Sorry, Mark, on this one, there is friendly disagreement.

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