Governments are proposing carbon taxes to discourage people and industries from activities that emit carbon dioxide. This is a feeble use of the tax system in fending off the catastrophe that governments see coming. There are other, more powerful ways in which governments could, and should, use the tax system if they truly want to discourage CO2 emissions.
Big city governments concerned about global warming have a special responsibility to act because urbanization holds the greatest potential to curb greenhouse gas emissions. Residents of big cities typically produce about half the emissions that residents elsewhere produce, but even this figure minimizes the potential of cities to curb greenhouse gases.
Residents of New York, for example, generate just 29% of the per-capita emissions that Americans as a whole produce. London does even better in eschewing emissions, besting New York by 20%. Canada’s major metropolis, Toronto, cannot hold a candle to either city, with per-capita emissions 35% above New York’s and 62% above London’s. Yet even Toronto is a paragon of climate-change virtue compared with national economies, registering 60% less than the Canadian average.
Big cities are so efficient because their residents tend to be employed in the low-impact financial, cultural, and intellectual industries, rather than the energy-guzzling primary industries, and they are less car dependent than rural or suburban folk — they tend to have more transportation choices, including walking. Because big cities allow their residents to live, work and study in compact neighbourhoods, travel is not only minimized, it is often eliminated altogether. If cities were more compact still — if Toronto was as compact as New York or New York was as compact as London, the level of greenhouse-gas emissions would quickly decline by levels otherwise seen as impossible. Toronto’s greenhouse-gas emissions would almost halve if it were as efficient as London.
The biggest stumbling block to achieving such efficiencies, especially in Canada, lies in our cities’ tax policies. The chief offender here is the property tax, the source of most city revenues.
The property tax, long disparaged for its economic inefficiency, is also an environmentally reprehensible tax on density. In most cities, downtown land is prized most highly, leading its owners to use it intensively. The more intensively that land is used, the less that infrastructure is needed for water, power, and other utilities, the more that a society can be efficient.
Instead of welcoming the inherent efficiency with which valuable downtown properties are used, cities punish them by taxing them on the basis of their high property values, rather than the actual costs of providing properties with municipal services. The tax on valued property encourages the use of low-value property further and further away, not just away from downtown but also in suburbs and beyond. Even land remote from transportation corridors, by all rights undeserving of development, then gets a spur in low taxes that encourage development where none would otherwise occur.
The way in which the property tax is levied makes things worse. Apartment buildings, which emit fewer greenhouse gases per square foot of living space than do single-family homes, are generally subjected to a much higher property tax than duplexes or single-family homes. This is an entirely unjustified tax that pushes people into living in less energy efficient lifestyles — apartment dwellers not only tend to use fewer city services tied to their dwellings, such as water delivery or garbage pickups, they also are less likely to drive and use roads.
And worse. Businesses pay especially punitive property taxes, encouraging them to relocate outside the city boundary, and then commute into town to provide services to their city customers. After they leave, their staff and suppliers tend to follow them over time, contributing to the well-known hollowing out effect that cities experience. The hollowing out worsens because, when these taxpayers leave the city, the tax load must fall on the city’s remaining taxpayers, increasing their tax burden and encouraging further departures.
To these traditional carbon-enhancing, city-destroying property taxes comes a new hollowing-out tax: Toronto’s new land-transfer tax, which will hit house sellers with levies in excess of $8,000 for modest houses. This tax will not only convince people to avoid buying in the city, it will also convince many not to move to be closer to their work, in both cases adding to the fuel waste that comes of city taxation.
Our cities’ tax policies need not inflict all these wounds. The property tax and the land transfer tax should both be abolished, and replaced with charges that simply charge city residents for the services that they use, in proportion to their use. Businesses will flock back to the city, as will residents, providing the densities that simultaneously raise the city’s efficiency while lowering its carbon intensity.