Canada Is Introducing a Big Honking Carbon Tax

Why are conservatives objecting to Milton Friedman's very conservative idea?

Milton Friedman with Ronald Reagan
Milton Friedman (2nd from left) with Ronald Reagan.

Bettman/Getty Images

The Canadian government, led by Prime Minister Justin Trudeau, has just introduced a new plan for a strengthened climate plan that has many interesting features, including billions in energy upgrades, subsidies for electric vehicles, and grid modernization.

But the biggest and most controversial item is the dramatic increase in the carbon tax, ratcheting up every year until it is C$170 (US$132.72) per tonne of carbon by 2030, and would probably increase the price of gas by 25%. They call it a "price on pollution."

Carbon taxes are based on the amount of carbon released, so the tax on burning coal would be higher than that on gasoline, which is higher than natural gas. In the Canadian proposal, the funds collected are then rebated back to the taxpayers. The majority of people will actually get more money back than they pay in the tax.

The basic idea is an old economic principle: as things get more expensive, people look for alternatives that are cheaper, whether it is electric cars instead of gas-powered ones, or heat pumps instead of furnaces, or just driving less. As the Globe and Mail editorial board notes,

"This tax is also like no other because its goal is to change behavior, not to raise revenues. The aim is for people to do such a good job of reducing emissions, and thereby avoiding the tax, that revenues eventually spiral to zero. The carbon tax’s goal is its own obsolescence."

Conservative politicians were immediately outraged, with the Ontario Premier calling it the worst thing you could ever see. This is odd, because carbon and pollution taxes are a very conservative idea. Writing in National Affairs, the very conservative magazine published by the very conservative American Enterprise Institute, Spencer Banzhaf describes The Conservative Roots of Carbon Pricing, noting that "various proposals to tax or price pollution have, from their beginnings, been championed by conservatives and their libertarian allies," including such right-of-center folk heroes as William F. Buckley, Jr., and Milton Friedman, who wrote in his book "Free to Choose" that pricing pollution through "effluent charges" were the best way to deal with the problem. Friedman said:

"Most economists agree that a far better way to control pollution than the present method of specific regulation and supervision is to introduce market discipline by imposing effluent charges. For example, instead of requiring firms to erect specific kinds of waste disposal plants or to achieve a specified level of water quality...impose a tax of a specified amount per unit of effluent discharged. That way, the firm would have an incentive to use the cheapest way to keep down the effluent."
Milton Friedman and George Bush
Milton Friedman and George Bush. Alex Wong/ Getty Images

Really, what kind of conservative can argue with Milton Friedman? Spencer Banzhaf concludes that since progressives (like Trudeau) are embracing carbon pricing, "they have effectively admitted that conservatives were right all along."

Screen Capture, Twitter

On top of the Gore-bashing (really? that's still a thing?) this tweeter actually demonstrates a true understanding of the whole point of a carbon tax: it is about using the market to encourage the changing of behavior. To burn less gas or ride a bike, and exercise their freedom to not pay the tax, and then enjoy the rebate even more. Katherine Harrison of the University of British Columbia writes in the Conversation that it is simple economics.

"Consumers respond to prices. At the grocery store, if the price of cauliflower goes up, you might buy broccoli instead. The same is true for fossil fuels. When the price of gasoline increases, people are more likely to combine trips, take the bus or buy a more fuel-efficient vehicle. When home heating is more expensive, they’re more likely to fix leaks or install a smart thermostat...The carbon tax is not punishment for bad behaviour. Rather, it’s a price signal to encourage people to lower their fossil fuel consumption."

It is most definitely not a punishment when the government plans to rebate it all back; then it is more like a reward for doing the right thing, and it has been shown to work in nations around the world. In Sweden, the big tax (now US$126) didn't hurt the economy either; according to the Swedish Tax Foundation:

"Since the implementation of the carbon tax 30 years ago, Sweden has been able to reduce carbon emissions while maintaining solid GDP growth. In fact, GDP per capita increased in real terms by more than 50 percent between 1990 and 2019."

Teacher, author, and journalist Gerald Kutney tells Treehugger that it will work in Canada too.

"A price on carbon is an essential part of any climate plan; it is an accepted market-based mechanism that has been adopted by many countries. Canada uses the fee-and-dividend variation. The PBO [Parliamentary Budget Officer] analysis has found that, after the rebate on the Federal Income Tax, there are net costs only to the richest 20%. The motivation is obvious: you save money by cutting back on your consumption of fossil fuels. With the fee-and-dividend model, it is more a carrot than a stick approach. This is even more important for businesses to justify expenditures to reduce GHG emissions. Carbon pricing is but one aspect of GHG reductions as much more is needed."

This is all basic economics, the kind beloved of conservatives. Barry Goldwater, Richard Nixon, and of course, Milton Friedman all supported pollution taxes. Funny how they have all forgotten this.

View Article Sources
  1. Canada, Service. "What's In Canada's Climate Plan - Canada.Ca". Canada.Ca, 2020.