'It's All About the Money Stupid'

Like the vast majority of my colleagues I support the use of carbon taxes to encourage households and industry to reduce their consumption of fossil fuels. We economists believe in the behavioural impacts of price signals, so of course we support making it more expensive to consume fossil fuels and emit manifestly harmful CO2  and other greenhouse gases into the atmosphere. 

I understand the scepticism that many people have (and cynical politicians exploit) about the need for and effectiveness of carbon taxes. People will materially reduce their consumption of fossil fuels when reliable alternatives are developed, affordable and widely available. It will be technological progress, not marginally stronger price incentives, that will make the real difference.

Still, whatever one's view regarding the importance of its incentive effects, there is a very compelling and urgent case for carbon taxes that I think many people understand and could accept. In the words of former President Clinton, albeit in a different way for a different reason: 'it's all about the money stupid'.

We know that as hard as we try, we will not achieve zero carbon emissions for many years, not in Canada and certainly not globally. And even then it may take years after that to extract carbon from the atmosphere in order to reduce concentration levels to a level that will meaningful reduce greenhouse gas effects. What that means is we can expect the increasing frequency and severity of storms, fires, floods and other climate change-related events to continue. And that in turn means we will need more financial resources -- more tax dollars -- to invest in the very wide range of measures that are urgently needed to reduce risks, minimize damages, compensate victims and rebuild and recover in timely and resilient ways. 

I've heard a number of understandably very distraught people demand that those responsible for human-caused climate change should be called upon to pay compensation for the material damages that climate change-related disasters have. They are thinking of course of the major oil companies and other suppliers of fossil fuels. But who are in fact responsible. It is convenient to target big oil and other fossil fuel companies as the fundamentally guilty parties. And there may be many good reasons to go after those companies for tax, environmental impact or other reasons.  But in reality it isn't the supply of oil, gas and other fossil fuel products that is the problem. It is the demand for oil and gas that drives their production and supply, and it is the use and combustion of fossil fuels that results in greenhouse gas emissions. 

If we want those responsible for greenhouse gas emissions to pay for the increasingly severe climate change-related damages those emissions are causing, it is household and industrial consumers of fossil fuels that we have to target. And that is precisely what carbon taxes do. 

But we need more than the tax. We need to dedicate the revenues that carbon taxes generate to desperately needed compensation funds -- more generally to finance measures that will help to prevent, mitigate, compensate and recover from the climate change-related disasters we are facing and will continue to face for many years..

These are unsettling times. But there is so much we can and should be doing to help communities minimize costs, respond more effectively, support impacted people, business and communities,  and recover in a fulsome and timely way. Commissions of inquiry, resource management agencies, municipal officials, fire protection personnel and others have all set out what needs to be done so the next climate events are not as bad as the last. But they all require major resources and investments, well beyond what normal budgets provide for.  

Government budget constraints should not be the reason we fail to act.  We don't have to revisit needs every time disaster avoidance and preparedness fall short -- we don't have to rediscover winter every winter. We need to commit the funds and make the investments we know are required and increasingly urgent to avoid, minimize and deal with catastrophic climate change-related events. And we need to do that without draining resources from all of the other priorities our society must address. Dedicating carbon tax revenues to the mitigation and compensation of climate change-related events may not be enough in itself, but it can greatly help. It can get us going much more rapidly and effectively with what has to be done.