The Conservative Case for a Carbon Tax

For almost a decade, many Canadian conservatives have shied away from the idea of putting a price on carbon, deeming it an unnecessary “tax on everything.” But with a large majority of the Canadian population supporting some form of carbon pricing, and carbon pricing regimes in place or under consideration in provinces with over 80% of the population and at the national level, it’s time for conservatives to rejoin the conversation. After all, carbon pricing done right is in fact a conservative idea that can achieve conservative policy goals.

Almost everybody would agree that some form of taxation is necessary for the healthy functioning of society. We need a way to pay for essential public services, even if conservatives would have a more limited list of what services are in fact essential. It is not taxation itself, but unnecessary taxes that increase the size of the state without doing much to advance the public good to which conservatives are averse. So the question is not whether we should have taxes, but what kind of taxes are least damaging. And most conservative economists would agree that taxing socially negative choices – whether smoking cigarettes or emitting greenhouse gases – is far preferable to taxing employment, income and investment. That’s why the idea of a carbon tax has won the support of conservative economists ranging from Ronald Reagan’s tax guru Arthur Laffer to Bush and Romney advisor Gregory Mankiw.

And as believers in free markets, conservatives understand that putting a price on negative externalities like pollution and greenhouse gas emissions is often a better and more economically efficient way of discouraging them and reducing emissions than the heavy hand of government regulation.

That’s why many large businesses, including energy companies like Enbridge and ExxonMobil, have been vocal about their preference for a simple, predictable, free enterprise approach to environmental policy, like a carbon tax, that allows businesses to figure out for themselves how best to reduce their carbon footprint rather than on navigating byzantine government bureaucracy. The Ecofiscal Commission estimates that adopting pricing rather than regulation to meet Canada’s GHG targets would lead to 3.7% greater GDP growth by 2020.

Now if carbon taxes were simply going to be used as a revenue source to increase other government spending – even if that spending was justified as supporting “green” programs – conservatives would be justified in calling it a tax grab. But that is why most conservatives argue explicitly that any carbon pricing should be revenue neutral – any carbon revenues collected should be used to reduce other, less economically efficient taxes. In British Columbia, their carbon tax has allowed BC to reduce personal and corporate income taxes to the lowest rates in the country. The Auditor General is required to report every year that carbon tax is being fully refunded through other tax cuts, and if it isn’t, the BC Finance Minister faces an automatic 25% pay cut. Far from being a tax grab, in recent years the BC government has returned more money in tax reductions than they have collected in carbon revenues.

Canadians are concerned about climate change, and conservative parties have to deal with that reality. According to a recent Abacus Data study, 71% of Canadians believe that the climate is changing due to human activity, and 70% of Canadians would like to see government take more action to reduce Canada’s emissions. A study Clean Prosperity commissioned through Vox Pop Labs earlier this year showed that roughly half of the voters the federal Conservatives lost between the 2011 and 2015 were concerned about the environment and climate change. This highlights a growing imperative for federal and provincial conservatives in Canada to address this issue, which matters not only to the majority of Canadians, but to many members of their base, too.

Why not, then, present a viable, conservative alternative to the bureaucratic, expensive, big government approaches being presented by those on the left? An approach that protects the environment by letting the free market decide how to reduce emissions and cutting personal and corporate income taxes at the same time – such as a revenue neutral carbon tax – could not be described as anything but conservative.

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