Does putting a cost on carbon emissions displace the emissions to
places without a carbon price?
This is the dilemma of carbon policy, and one that appears to be
taking place in British Columbia.
Before the carbon tax was enacted BC only imported four percent
of its cement. Those were generally
specialized products with limited supply from the province. By 2011, after three years of the tax,
imports had climbed to 23 percent of market share.
“Why? Because imported cement is not subject to the
BC carbon tax. Foreign cement powder comes into BC tax free,” said Cement Association
of Canada President Michael McSweeney.
“Not surprisingly, since the BC government allows foreign
made products into the BC market tax free, there is now less demand for our
local fully-taxed cement,” McSweeney continued in testimony
to the BC
Select Standing Committee on Finance and Government.
“As a result, in 2011, BC’s cement kilns are running at about 50
to 70 percent capacity, which has meant rotating layoffs for hundreds of
employees and termination or layoff notices for contractors. Local mines,
trucking lines and railways serving the kilns are also hurt. The negative
provincial economic impact runs in the tens of millions of dollars. But
most of all the impact of this is on BC families - as they are the ones that
have to bear the brunt of unemployment, while others are employed making cement
elsewhere in the world.”
Okay. That’s the
cement industry guy. But so far I have
been unable to get a response from carbon tax advocates on why it isn’t the tax
doing this. I would appreciate a counterargument. At this point it appears to be the same
displacement effect I wrote about here,
reporting on a UK study that found that Britain’s domestic carbon emissions
reductions are cancelled out by increasing imports.
That has an unintended consequence, as McSweeney reported, increased net carbon emissions from hauling cement from out of province.
It also spells net revenue loss, McSweeney noted, “because
23 percent of the cement used in BC now doesn’t pay the carbon tax, this system
is actually costing the government direct revenue. The trend lines show
that as the carbon tax increases, the tax base it applies to will continue to
decrease. It’s a money-losing proposition for all involved.”
Again, carbon pricing proponents, I want to hear why this
is not true, because I would like to see an effective price put on carbon to
discourage emissions.
Interestingly, McSweeney does not call for repeal of the
carbon tax, but for changing it to capture consumption-based emissions.
“We have been recommending for a few years now that the BC
government should apply the carbon tax at the point of sale, where cement is
transferred to the concrete industry. This way all the cement used in BC
will pay the carbon tax. It will be fair, because every cement producer
in BC, Alberta, Washington and China will pay the same BC carbon taxes.”
Could this fix work in the US?
Could a tax on carbon intensity of products be applied by a state and
get around Constitutional bars on state trade barriers? This would provide an
incentive to achieve lower carbon ratings up the supply chain. It would be
impractical to do this at a retail level, a different sales tax on
everything. So assess the tax at the wholesale level, much as you would
in a value-added tax system. Then rebate wholesale carbon tax revenues to
offset the retail sales tax – the part you are going to rebate. A large share of carbon revenues must be
invested in clean energy and land-based carbon storage.
BC’s carbon tax is apparently moving a major emissions source to
other jurisdictions. This displacement
effect must be taken into account by people designing state climate
policies. We need to figure out ways to
tax carbon emissions based on consumption rather than production, or we will
only be moving deck chairs around on the Titanic.
p.s. My "Stormy Weather" co-author Guy Dauncey posted
this to the BC Solar Energy Association list and generated a lively discussion.
It follows:
Blaise Salmon - I think
this problem can be addressed with a "border adjustment", as
outlined in the detailed report below (page17). This US study shows a
well-designed carbon tax would both reduce emissions and create
jobs.
A "border adjustment" is in the carbon
"fee and dividend" bill being promoted by Citizens Climate Lobby in
the US. I will be among the 600 citizen advocates converging on
Washington DC next week to push for this with Senators and Members of
Congress.
Patrick Mazza - This looks like a good system for national carbon pricing
frameworks. What about subnational systems like BC carbon tax or
California Cap and Trade? In the US California could not charge a border
adjustment because it would violate the Interstate Commerce Clause of the
Constitution, and probably NAFTA as well. So until we have national
systems is there any way to avoid displacement effects such as are apparently
taking place with cement in BC?
Blaise - I'll make
enquiries. And I plan to
attend the session at the conference in DC next week "State carbon
taxes".
Eric Doherty - The border leakage problem is real, but
multiple mechanisms for reducing the problem are available. One example is
cross-border shopping for gas, it would be better to have similar carbon taxes
on both sides of the border. But Singapore just has a requirement that gas
tanks be 3/4 full when leaving, with fines for violations (and bigger ones for
fixing gas gauges to evade the system). I proposed a toll on (gas and diesel powered)
vehicles leaving the lower mainland to Washington State http://www.surreyleader.com/opinion/239127581.html
This may not be the best way to deal with the issue, but it is one option.
Carbon taxes are more effective with mechanisms to deal with
cross-border avoidance. But one problem is that some trade and investment
agreements could be interpreted to prohibit such mechanisms; however the
superpowers (US, China) or any significant block of countries have the de-facto
power to sweep these agreements aside if needed.
Andy
Skuce - I wrote a
long blog post on the cross-border shopping for gas problem. There is a small
but real effect from this on BC fuel sales stats, but cross-border shopping
trips have many motivations and the 7 cents per litre carbon tax on gasoline is
just part of that. The idea that all of BC's fuel sales reductions are
attributable to people filling up in the USA is a myth.
Yoram Bauman has written on this as well
I think that the problems faced by the cement industry provide
much more serious limits on what any jurisdiction can do with a carbon tax in a
free trade zone. I have heard different accounts of how far countries or
provinces can go with things like border tariffs under agreements like the WTO
and NAFTA. Whatever the reality, it won't be easy to impose them and any
attempt won't go uncontested.
Honestly, I don't think the BC carbon tax can be increased above
$30/tonne before our trading partners impose one. Even at current levels, it
may be necessary to provide ad hoc exemptions for affected industries, as has
already been done for greenhouse growers (sic).
Skeptical Science My blog: Critical Angle
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