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      10-31-2018, 02:46 PM   #90
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Ignore Trudeau's carbon-tax chorus. Nobel economists aren't backing this plan

Canada's carbon-tax plan would be dysfunctional and ineffectual, according to Nobel Laureate William Nordhaus's work

https://business.financialpost.com/o...king-this-plan


In an effort to bolster the federal Liberals shaky arguments for a semi-national, cash-circulating Rube Goldberg carbon-tax price mechanism, Prime Minister Justin Trudeau and his government are pointing to the work of William Nordhaus, one of this year’s Nobel Prize-winning economists.

Canadians would be better off taking advice from a Nobel Prize winner who supports carbon taxation than listening to “ideologues and politicians who deny there’s a problem in the first place,” Trudeau told high school students in Ottawa on Monday.

Similar appeals to Nordhaus as bearer of a Nobel encyclical for the new tax have come from Environment Minister Catherine McKenna and Gerald Butts, Trudeau’s personal secretary. Butts, a former World Wildlife Fund activist, earlier this month tweeted: “You can now choose between a Nobel Prize-winning economist and (conservative politicians) Kenney/Ford/Scheer when deciding who is right about the economics of pollution pricing.”

Rube Goldberg, by the way, is the famed cartoonist from the early 20th century who drew images of wildly improbable contraptions. In 1931, he produced a pretty good illustration of a “Professor Butts” demonstrating his self-operating dinner napkin, which appears to function in roughly the same way as the climate-fixing carbon price. (The napkin contraption can be found at Wikipedia’s Rube Goldberg entry.)

Aside from the twisted problems embedded in the Trudeau-Butts carbon-price scheme, there’s another niggling issue. Any reading of Nordhaus’s work on carbon taxation cannot avoid the conclusion that Canada’s half-baked, go-it-alone deployment of such a regime is doomed.


As I mentioned in a recent column on Nordhaus, the Nobel economist reached a “bottom line” conclusion in a 2014 paper that a carbon tax would require “clubs” of participating nations that would impose “penalties and sanctions on non-participants” to enforce international climate agreements. Unless most or at least a large number of major countries adopted a similar carbon tax and imposed direct tariffs of up to 10 per cent on all imports from non-carbon-tax countries (so-called free riders) then the carbon tax idea will fail — just like the Kyoto protocol, which set out to reduce greenhouse gas emissions back in 1997.

In other words, based on Nordhaus’s own writing on the subject, the Nobel Laureate would have to assess Canada’s carbon tax plan as dysfunctional and ineffectual.

However, in response to my recent assessment, Andrew Leach, a University of Alberta economist and sometime adviser to Alberta’s NDP government, dropped me a tweet: “@andrew_leach Replying to @terencecorcoran my PhD thesis built on Nordhaus’s work. I’ve got a pretty good grasp of his body of work. But, by all means, keep trying to use quotes out of context from a guy who won a Nobel for climate change econ to advance your petty agenda. Just make sure to ignore what he said about BC.”

With this, Leach has woven a sarcastic web in which he gets a little tangled up in his own cleverness.

First, regarding the PhD thesis: Leach’s thesis was written in 2003, 10 years before Nordhaus published his critique of carbon-tax theory in a 2014 paper, Climate Clubs: Designing a Mechanism to Overcome Free-riding in International Climate Policy. Perhaps Leach missed this and other nuances in Nordhaus’s views, although that’s hard to imagine.

Second, Leach sarcastically tells me to make sure I ignore what Nordhaus said about British Columbia’s carbon tax. OK, let’s look at what he said about the B.C. tax in a New York Times interview. “When I talk to people about how to design a carbon price, I think the model is British Columbia. You raise electricity prices by $100 a year, but then the government gives back a dividend that lowers Internet prices by $100 year. In real terms, you’re raising the price of carbon goods but lowering the prices of non-carbon-intensive goods.”

Except 95 per cent of the electricity produced in B.C. is hydropower and is not CO2-taxed. B.C. does import more coal-fired power than any other province, but the CO2 tax is not applied to imported electricity. Therefore the carbon tax has had next-to-no impact on the province’s electricity prices — in spite of its significant imports of coal-fired power from Alberta.

And it gets worse. If a utility burns B.C. natural gas to produce electricity in the province, the CO2 tax appears in the consumer’s utility bill. But if B.C. natural gas is shipped across the border into Washington, made into electricity there, and then exported back to the province, there’s no CO2 tax in the utility bill. How bizarre is that?

So, note to Leach: Make sure you find out what Nordhaus actually knows about the B.C. tax. And, while you’re at it, have a look at whether B.C.’s carbon tax has been effective in curbing emissions and fossil fuel use.

Finally, the suggestion that Nordhaus’s conclusion on the “bottom line” on carbon taxes was taken “out of context” does not stand up. In his 2014 paper, Nordhaus uses “bottom line” four times, including this reference from the abstract summary of his conclusions:

It “has proven difficult to overcome the obstacles to reaching international agreements caused by free-riding, as seen with the defunct Kyoto Protocol… The bottom line of this study is the following: Using a simplified representation of climate change economics and international trade, it finds that without sanctions there is no stable climate coalition other than the non-cooperative minimal-abatement coalition. However, a regime with small trade penalties on nonparticipants can induce a stable coalition with globally efficient levels of abatement. Moreover, such a regime would attract a large majority of countries relative to the current situation, where international climate treaties are essentially voluntary. The essential feature for making the club effective is uniform penalty tariffs on nonparticipants.”

Nordhaus is equally explicit in his 2013 book, The Climate Casino. On pages 256-7 (look it up), he says an effective climate policy involves a carbon price set nationally and internationally and enforced through sanctions, penalties and tariffs — as high as 10 per cent, he has suggested — applied across the board on all imports from non-complying countries.

The message to Leach and Butts is that the Trudeau carbon tax contraption does not follow the Nordhaus international trade model. As a result, the plan will not and cannot work. Look it up.
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