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Beyond China's 'Ginormogantic' Carbon Tax

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It was nice to see that nobody went over the top late last month when the Xinhua News Agency reported that China would introduce a carbon tax.

"This is huge. In the climate policy arena, it's downright ginormogantic," wrote Brian Merchant on the Motherboard blog. "We'll have to wait to scrutinize the details, but the proposal alone is momentous: Half the coal plants in the world, taxed in favor of environmentally-preferable energy sources."

Merchant wasn't alone in his enthusiasm. A carbon tax is widely seen as a sort of gold standard in climate strategy, a way to harness market forces by pricing competing energy sources according to their environmental impact. Create a price barrier to carbon-intensive forms like coal, oil, and even natural gas, based on the methane released through natural gas fracking, devote the proceeds to developing carbon-free energy and boosting energy productivity, and those carbon-free sources will flood the marketplace.

(As they were already beginning to do in January, when 100 per cent -- yes, 100 per cent! -- of the new electricity generation that went online in the U.S. came from solar, wind, or biomass.)

The Acid Test

This is the story line that has sustained interest in a carbon tax, making it a kind of acid test for the depth of politicians' commitment to greenhouse gas (GHG) reductions. And there's lots of evidence that a carbon tax would do some good, as long as it isn't the beginning and end of climate action.

Because here's the question: What if a carbon tax is just the first act?

A price signal has to clear two hurdles to achieve its intended purpose. It has to be loud enough to get our attention. And once we've got the message, the solution has to be within our control. So, powerful as a carbon tax may be as a source of capital for clean energy and energy efficiency, it may fall short as a tool to encourage low-carbon practices or lifestyles:

  • Outside a handful of heavy manufacturing or processing industries, energy is just a small portion of a company's operating cost or a household's monthly budget. So a carbon tax that was high enough for most of us to notice would not likely gain political approval.
  • Even if consumers and businesses want to do something about their greenhouse gas emissions, the solutions may not be within their control. For households, for example, it's easy enough in some jurisdictions to buy renewable energy through the electricity grid. But it's a lot tougher to influence planning decisions that determine the size of new homes, the length of a daily commute, or access to public transit -- all of which help determine the energy we use and the GHG emissions we produce.

A Carbon Tax That Falls Short

Here's an example of a carbon tax that falls short. I've known for years that I incur my biggest carbon footprint when I step on a plane, so I try to limit my air travel. When I do fly -- even when I travel by train -- I turn to carbon offsets. To make sure I was buying a legitimate offset, I took my cue from one of Canada's leading environmental NGOs and searched for a reputable supplier with a track record for effective carbon reduction projects.

After all that, at a rate of $20 per tonne of carbon, the offset is hardly noticeable against the cost of the ticket -- if we were counting on price to reduce my air travel, the airline's own fuel surcharge would do a far better job of it. But if offsets were much higher, they would draw even more bitter complaining than they already do.

The Real Carbon Tax

"Hurricane Sandy was the real carbon tax," says my colleague Ralph Torrie, managing director of the Trottier Energy Futures Project. "Climate change is going to get hugely expensive, to the point that it will cloud and could eventually preclude any prospect for human prosperity."

So the real question is how to build on a legitimate, high-profile mechanism that still just means tinkering with tax regimes, to get at the deeper transformations our economy will need through 2050.

Here in Canada, the Trottier Project is paying close attention to the activities, decisions, and assumptions that shape energy demand and the sector-by-sector challenges that will have to be solved on the road to a low-carbon energy future. In the next few weeks, we'll be releasing a report that shows no shortage of carbon-free energy between now and 2050, the target date for an 80 per cent GHG reduction. But even if a carbon tax is a good start, even a necessary start, down that road, there's a lot more to get done over the next 37 years.