IAmA economist, Chris Ragan, of McGill University and chair of Ecofiscal, here with Dale Beugin, Ecofiscal’s Executive Director. Let’s talk about carbon pricing. AMA!

According to Ecofiscal's survey, 11% of the public don't believe climate change is happening and an additional 27% think there is only some evidence.

What should be done about this? How much of a barrier is this to moving forward on climate change actions?

Climate change and climate science is pretty tough stuff -- so we shouldn't be surprised if we learn that many Canadians haven't mastered it. But like many other complex policy issues, I think governments and groups like Ecofiscal need to do a better job at explaining why the environment matters, what costs we are now experiencing, and why price-based policies are such a good way to reduce the environmental damage.

What specific, known market failures cannot be effectively addressed with carbon pricing alone?

Great question -- and pretty geeky. Our report on complementary policies discusses this. There are many market failures where some other policies can be used to enhance the effectiveness of the carbon price. Incomplete information about efficiency of appliances; principal-agent issues wrt building standards; uncertainty about performance for EVs. See more at: https://ecofiscal.ca/reports/supporting-carbon-pricing-complementary-policies/

Some seniors tell me that they cannot afford to pay more taxes, regardless of what benefit it may bring society. They perceive a carbon tax as an unfair burden on them when they have only 10-20 years left to live. What words do you have for them?

Great question. But the point of carbon pricing is NOT to reduce anyone's purchasing power -- young or old. The point is to change prices in such a way that people change their behaviour. So a great policy idea is to put a price on GHG emissions and then make cash rebates back to individuals. For example, with a $30 per tonne carbon price, we could have cash rebates of $450 back to two-person households. Alberta has done this-- see here: https://www.alberta.ca/climate-carbon-pricing.aspx

What are your thoughts on the divestment and 'keep it in the ground' movements and their implications for Canada's carbon pricing and oilsands? If there is a global movement towards carbon pricing that can reduce demand for oil would it make current investments in oil production unprofitable?

Carbon pricing, especially at higher prices and in many countries, will gradually reduce the global demand for oil. It will also enhance the development of cleaner technologies -- which will also provide substitutes that will reduce the demand for oil. So as carbon prices rise, more FF firms will naturally choose to "keep it in the ground" -- this will be a natural response to the changing economic environment. But other approaches to BLOCK the development of oil -- such as preventing pipelines -- will be HIGHER COST ways to reduce emissions. On this point, read this great article by U of Calgary's Trevor Tombe: http://www.macleans.ca/economy/economicanalysis/blocking-pipelines-is-a-costly-way-to-lower-emissions/

Hi, I am wondering what your thoughts are on governments using carbon price revenues to safeguard the political acceptance of the policy, such as using revenues to lower income taxes?

Thanks

Governments can use the revenues to reduce existing taxes, or to issue cash rebates to households. The first option is used by BC; the second option is used by Alberta. Both help to build the political durability of the policies -- and they are also good ECONOMIC ways to recycle carbon revenues.

Does this mean if I create blocks of solid carbon by sucking CO2 from the air I get a cut of the carbon tax?

YES! If you create a technology that sucks carbon out of the air (or anything else) and then creates "carbon pucks", you deserve financial credit for your efforts. In a carbon-pricing system with a system of credits or offsets, your pucks would receive financial support. So if you create that technology, we'll advocate for the appropriate credit system.

How would you go about presenting an argument in favour of carbon pricing to someone who does not see the value in it without having to go into details about externalities, Pigovian taxation, and the like? Basically, what's you elevator pitch to convince anti-carbon pricers that it is indeed a good idea?

How tall is the building? Here's the pitch: 1. GHG emissions are costly. 2. People respond to prices every day. 3. So a tax on GHG emissions is a simple way to get households and businesses to modify the way they do things -- gradually in a way that leaves them lots of choice. 4. The alternative approach is to TELL people what they have to do -- intrusive regulations or expensive subsidies that have higher economic costs. 5. Final point as we get close to the top floor: We can use the revenue to reduce existing taxes -- so that our overall purchasing power is not altered. 6. Cleaner environment; lower income taxes. What's not to love?

Some economists think that B.C.'s carbon tax approach, which aims to be revenue neutral to government by cutting income and corporate taxes at a level commensurate with the revenues collected from the carbon tax, is a good idea. Andrew Coyne ran with that idea in his opinion piece this week in the G&M, for example. The rationale is that using government revenues to achieve carbon reductions, say through subsidizing the purchase of EVs, is not an efficient way of getting the result of reducing emissions. Realistically, what sort of base point reductions could be enacted on income tax and/or corporate tax if the revenues from carbon pricing are recycled based on a revenue neutral approach, and what would that mean for the average Canadian in terms of net income?

Revenue neutrality is one option for the design of a carbon price. There are certainly economic benefits that come from using the revenue to reduce income or sales taxes. So I think Andrew Coyne is right on the money. But there are also other options -- the revenues could be used for other economic priorities, such as infrastructure or financing research and development. Check out our report on recycling: https://ecofiscal.ca/reports/choose-wisely-options-trade-offs-recycling-carbon-pricing-revenues/

I've read that report, I was wondering if you or anyone else has calculated what level of income and/or corporate tax cuts could be funded with carbon pricing revenue based on the proposed federal system? Either in $ or % for the average Canadian.

Sorry, but we have not done this analysis. But someone should do this -- especially if they want to think seriously about having income-tax cuts.

Who decides whether an activity is "carbon emitting," or not?

Who should be deciding? There's a lot of complexities I don't understand:

Is methane production production from cattle something that should be taxed? Is logging a carbon-generating process or a carbon-sequestering process? If a well produces oil, should that be taxed, or should the consumer of the oil be taxed? Does the manufacture of plastic from oil qualify as a carbon-emitting activity?

Should carbon production from man-made features qualify as carbon emitting, such as new bodies of water created by hydrodams? What about new or growing natural features, such as swamps, that happen to be located in a country?

The science should be (is!) pretty clear about where emissions actually come from. But the practical difficulty for policy is to identify those emissions that can "easily" be priced, and those that can't. For the first group, design a broad-based carbon price. For the second group, design other policies that can do the work -- hopefully enhancing rather than undermining the carbon-pricing system. See our report on this: https://ecofiscal.ca/reports/supporting-carbon-pricing-complementary-policies/

Hello Mr Ragan, thank you for doing the AMA. I'm a McGill engineering graduate and I'm curious about whether you think carbon tax income (especially those from the extractive sector) would impact government income, budget, and spending? If so, how?

Good question. Carbon pricing CAN generate NET income for governments -- but it need not do so. With approx 720 Mt of GHG emissions annually, you can do the math on what revenues would be generated with a $30 or $50 or $70 per tonne carbon price. But governments have an opportunity to use this revenue to REDUCE various other taxes -- and there is a great one-two punch that can come from a higher carbon price PLUS lower income taxes.

Check out our report on revenue recycling: https://ecofiscal.ca/reports/choose-wisely-options-trade-offs-recycling-carbon-pricing-revenues/

What do you make of Minister McKenna's remarks that she has "no time" for climate deniers?

I don't like the term "climate deniers". Climate science is complex, and it's only natural that lots of people disagree about the size of the problem and the nature of the best solution. That's why we need a broader conversation about this whole topic -- which is why we wrote our latest report.

But let's be clear: governments across this country have decided they want to reduce GHG emissions, and where Ecofiscal can help is by identifying the policies that can BEST reduce emissions while maintaining a strong economy. Carbon pricing is that policy!

Are you taxing individuals or corporate entities, and how are you going to sell this legislation to the public? ( assuming you are based on America )

The important thing is to apply the tax/price to the entity that "creates" the emissions. Households sometimes; businesses sometimes. If all of these entities face the price, then they will have the incentive to change their behaviour. That's what this is all about.

We could also have a technical and geeky conversation about the economic incidence of income taxation, and thus who REALLY bears the burden of various taxes. Is that what you were getting at?

Climate has been changing in every region on Earth since the Bible reported that Joseph interpreted Pharaoh's dream about 7 fat cows & 7 lean ones. California has recently suffered a long decade of drought.

• None of the 30+ IPCC computer model predictions have come true.
• Governments still fly regiments of civil servants to conferences around the world
• Gasoline prices in Ontario have risen from $~1.00 /L 2 years ago to $~1.30 /L today and most people, companies & governments haven't changed their habits and are still driving ~10km over the limit.

A. Doesn't this prove that CO2 is Not the prime driver of changing regional climates? Our ancestors didn't keep good records and present day scientists are actively studying & debating causes of climate change:

• Cloud Mystery

• Sunspot Cycles

• Urban Heat Islands

• Deforestation

• Smog

• Volcano Cycles

• Milankovich Cycles (have we entered a cooling phase bottoming in 2050?)

• ...? -/-

B. Isn't Carbon Tax in reality -not theory- just an excuse for governments to raise taxes? -/-

C. Wouldn't we be better advised to PREPARE for the extremes that changing climates create:

• larger storm sewers

• no building on flood plains

• reforestation

• preserving farm land

• ...?

We are economists, NOT climate scientists. We take as our STARTING point the overwhelming consensus among the world's scientists that climate change is real, costly, and deserving of a policy response. For any government that has indicated a desire to reduce GHG emissions, we can help identify the lowest-cost way of doing so -- CARBON PRICING!

Isn't"carbon pricing" just a tax against developed nations? And why make policy based on a myth?

GHG emissions per dollar of GDP are actually higher in developing countries than in developed economies -- because of the size of the service sector in the latter. It IS true that most of the past GHG emissions have come from currently developed countries, but most of future emissions will come from the rapidly developing world.

What's the myth?