The Green Shift - A Step Forward or a Step Sideways?

Stéphane Dion, Leader of Canada’s Official Opposition, has taken a bold political gamble by proposing a new carbon tax at a time when energy prices are at record highs. Leaving aside whether this makes for good or bad politics, one of the acid tests of any climate-change related policy proposal is whether it provides the certainty industry will need to make the huge investments needed to reduce carbon emissions.

It’s hard to answer that question, not simply because the details as set out in the highly polished ‘Green Shift’ document are sketchy, but because most of the document does not deal with climate change matters. Rather, it focuses on shifting the green from pockets of the ‘haves’ to those of the ‘have not’s.’

Though the obviously sincere and environmentally committed Mr. Dion wants to impose measures that would curtail or eliminate greenhouse gas emissions, the essence of the Green Shift paper would seem to be an income redistribution strategy to finance a commitment to reduce poverty in Canada.

Close to $9 billion of the estimated $15 billion of carbon-related revenues that would come from big emitters and other carbon users would be returned to Canadians earning less than $40,000 a year in the form of income tax cuts and benefits targeted at children, low wage earners, rural residents and individuals with disabilities.

Using a pollution-based tax system to redistribute wealth from rich to poor, from the oil patch to the rest of the country, and from corporations to individuals, in and of itself may be a good thing - or not - depending on one’s point of view. However it is not a comprehensive climate change strategy.

While this is justified as a commitment to revenue neutrality - in this context meaning the federal government will not increase its revenues through a new tax but will redistribute the revenues back to Canadians in tax cuts - it makes for an interesting debate.

But what does the plan do to combat climate change? Clearly, the first important step is putting a price on carbon emissions. The price will begin immediately at $10 per tonne of greenhouse gas emissions and rise steadily until reaching $40 per tonne within four years.

That is very clear and comes as no surprise to anyone in the energy sector. But what about this sentence “Further into the future the price on carbon will continue its gradual rise to reflect the true social costs of pollution.”

The vagueness of the phrase “the true social costs of pollution” is not likely to sit well with decision makers that must commit millions of dollars in technology and process changes to bring significant emission reductions on line even within the four years.

Business can live with taxes; but it does not like uncertainty.

The Plan states “By starting with a low price that rises predictably over time, both businesses and individuals will have the time that they need to adjust their sources of energy and invest in low emission technologies. Yet by rising to $40 per tonne, we will have started the transformation toward a greener Canadian economy.”

There is very little else in the document that the business community could sink its teeth into as a guide to investment decision-making. The Plan calls for Accelerated Capital Cost Allowance for green technologies as one way to generate business investment. By the fourth year of the plan, $600 million annually will be invested to accelerate the capital cost allowance rates for investments in green technologies.

That’s peanuts compared to what is needed to transform our energy production, industrial technologies and capital stock to deliver significant emissions reductions.

The Plan proposes “Better Research and Development (R&D) incentives” to stimulate private R&D through the Science, Research & Experimental Development (SR&ED) Tax credit. Changes are proposed to make the SR&ED Tax credit 25 per cent refundable so all companies, not simply those that are earning a profit in the short-term are rewarded for their R&D activities.

Again, a pittance!

Another issue that needs more explanation is how tariffs and adjustments for globally competitive industries. While the plan makes mention of the concept, far more detail is required.

Without doubt The Green Shift is a bold idea, but Mr. Dion is correct, it is not a novel idea. British Columbia has initiated a similar program and it is in place elsewhere in the world. In the fullness of time, voters in B.C. and elsewhere in Canada will signal whether the shift toward the green economy is politically acceptable.

And while proponents of taxing pollution may point to the Plan as a step in the right direction, the question remains whether it is a step forward or a step sideways.

Compared to the 2007 Liberal Party White Paper on A New Approach for Large Industrial Emitters, which was replete with facts and precise details that a business analyst could quickly grasp and plan for accordingly, the Green Shift Paper generates more questions than answers.

We repeat the message we have so often put forward in GLOBE-Net - we need to get on with the job of reducing emissions and dealing with the economic and social consequences of climate change. This will require clear policies, predictable regulatory regimes, considerable public and private expenditure in energy and industrial infrastructure, and government and industry working in partnership.

The jury is out on whether the ‘Green Shift’ is an effective carbon management policy. Mr. Dion and his team need to fill in the other half of the story before business and others can weigh in. In selling the proposals to Canadians over the next few months, they might well give thought to clarifying the message.

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