Carbon tax smackdown: Higher prices at the pump don’t mean fewer emissions

Carbon tax smackdown: Higher prices at the pump don’t mean fewer emissions

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Newsflash: People do not change their behaviour in the face of rising prices when the product is essential to their economic success

According to the oracles of carbon economics, a carbon tax must be applauded because it is a “market-based” tax that acts just like a “market price” which, under the infallible economic laws of supply and demand, will automatically produce reductions in carbon dioxide emissions more efficiently than regulations and other big-government measures.

As the current $20-a-tonne federal carbon tax — about 4.4 cents per litre of gasoline at the pump — rises to $50 or $100 or even $200 in years to come, fossil fuel consumption will fall, an outcome allegedly guaranteed by economic theory.

Sounds amazing: You pay a tax and the government gives you back more than you pay. Fantastic. Let’s have a bigger carbon tax! Imagine: If a $20 carbon tax produces a refund of $307, then a $200 carbon tax will mean an annual tax refund of more than $3,000.

This is known as the carbon-tax-and-dividend plan, advocated by coalitions of activists and corporations, including big U.S. oil firms and other businesses that recently agreed to give millions of dollars to promote the concept in the United States.

When big business conspires to raise taxes on all consumers, consumers and voters should start to think twice before joining the campaign. British Columbia once promised a carbon tax dividend on its carbon tax, but now keeps all the money.

Of all the myths surrounding a carbon tax, the greatest is the foundational claim that an increase in the price of fossil fuels will lead to major reductions in carbon emissions, thereby saving the world from the perils of climate change. Yale University’s William Nordhaus, a 2018 Nobel Prize winner, argues in The Climate Casino that a “sharp price rise” is needed to “choke off” growing carbon emissions.

Gasoline price history in North America suggests the choke-off theory is at least debatable and more likely unsupportable.