So why is carbon pricing failing as a policy? At least five reasons.
Though it does bring in revenues, carbon pricing just doesn’t cut it for many countries
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First, it is very visible, leads to higher prices for necessities (transportation and heating), and hurts low-income and rural voters. Hidden taxes and even costly regulations on businesses are politically easier: voters don’t see them raising prices, even though they do.
Second, voters like policies that give them money rather than take it away. Outside California the U.S. has very little carbon pricing. But Washington just passed legislation providing almost a half-trillion dollars in climate subsidies. Subsidies financed by higher deficits or corporate taxes are more appealing than taxes — until they break the bank.
Third, many countries have little faith in the effectiveness of carbon pricing, actually preferring clean energy regulations and mandates. Even
Jonathan Wilkinson, when he was environment minister, was convinced that even with the carbon price rising to $170 per tonne mandates and clean fuel regulations were needed if Canada was to reach its (unrealistic) GHG emission targets by 2030.
Fourth, without international coordination carbon policies have significant impacts on competitiveness that could lead to deindustrialization and job losses in energy-intensive industries. For Canada, this is especially important. Our carbon policies are on a different track than those of our largest trading partner, the U.S. Even if we match the Americans’ huge new subsidies, our high carbon price will make Canadian businesses less competitive than U.S. companies. Border tariffs with the U.S. might offset our disadvantage but wouldn’t stop Canadian businesses shifting production south to the largest market in the world.
Fifth, energy security and poverty will force countries to trade off climate change with other public objectives until practical technologies develop commercially. In today’s energy crisis, European countries are scrambling for coal, natural gas and oil to support both consumers and industries.
Though it does bring in revenues, which is always appealing to governments, carbon pricing just doesn’t cut it for many countries, as the OECD has now shown.