Many economists were excited a few years ago when the federal Liberals committed to introducing a carbon tax. Whether they were specialists in environmental economics or not, they knew from their introductory textbooks that emission pricing is a good tool for controlling pollution. And here was a major political party citing economic theory to support its policy plans. How enlightened!
But the specialist literature carried a warning my colleagues largely ignored. As I tried to caution (more than once) emission pricing makes sense if it is used instead of, not on top of, regulation. Because the different policy instruments amplify each others’ costs, if emission regulations are not removed before adding the tax, the outcome can be worse than doing nothing at all.
Unfortunately, most Canadian economists were happy to do the light lifting of telling governments why they should introduce a new tax, but very few wanted to help with the heavy lifting of convincing the same governments they first needed to repeal renewable energy mandates, home retrofit subsidies, ethanol mandates, electric vehicle subsidies, appliance efficiency standards, new energy efficiency codes for buildings, new motor vehicle fuel regulations, coal phaseouts, and a host of other fashionable green policies, support for which is nowadays viewed as a litmus test for being a good citizen.......More
