In my first response, I focused on the relevance of Dr. Jaccard’s plan and costing model from a rather theoretical perspective. In this message, I try to take the debate to the ground.
Dr. Jaccard’s model puts his compliance cost and GDP estimates in a very general setting. One question I asked myself was: which Canadian communities will be most impacted, and how much?
Remember, you can only reduce GHG emissions where they physically occur.
So I looked up the list of Canada’s largest GHG-emitting plants. I saw that that 2005 through 2007 reported GHGs for Canadian industrial facilities that discharge more than 100,000 TCO2e/year. Reporting large plant emissions account for about 80% of total industrial GHG emissions and 37% of the entire Canadian GHG inventory. Then I sorted the large GHG plant list by federal riding, using federal riding as a proxy for "community". At call the communities at risk under GHG regulation.
Slide 2 in the attachment shows you that 80% of the large industrial plant GHGs in Canada originate in only 30 ridings. 11 of those communities are in Alberta, and 18 are in other provinces. 5 are in Ontario. 3 are in New Brunswick and 2 each are in Nova Scotia and Newfoundland.
Then I asked: if the GHG regulation-vulnerable plants operating in these communities have to pay $40/TCO2e (the lowest rate suggested by Dr. Jaccard) to buy Canadian GHG quota or international credits to offset ONLY THE INDUSTRIAL GHG discharges in the communities, and the reduction objective is the higher of the two reduction targets examined in the TD/Jaccard/Suzuki/Pembina study: (1) what does this mean in new taxes in these communities and (2) what is the likelihood the newly taxed plants would continue to operate (and generate new federal tax revenues) as opposed to shut-down?
The table on slide 2 shows you the value of only a portion of the tax impact on the listed communities given the Jaccard plan. Remember, the Jaccard plan calls for an economy-wide reduction. So IN ADDITION to the new taxes on industrial activity that the Jaccard plan proposes, every person in Canada also has to cut personal and household energy consumption and economy-wide vehicle use over 40% from current levels by 2020 to meet the higher of the two examined GHG reduction objectives. In the table on page 2 I account only for the industrial employer indirect GHG tax liabilities, and none of the cost of compliance with the personal/household/transport sector GHG reduction mandates that are also incorporated in the Jaccard plan.
How to read the "Communities at Risk" Table
The numbers in the 6th column in the table on slide 2 are simply the total GHGs reported in 2007 by facilities that are legally obliged to report GHGs under existing law. More than just the currently legislated reporting businesses will be impacted by any final Canadian GHG legislation, so this gives you a conservative, potentially regulated/taxable/quota-covered industrial GHG estimate, for each of the listed communities.
In the 7th column, I asked: how many TCO2e in reductions/offset credit purchases per year would have to be assigned to the plants in this database for Canada to achieve the Bill C-311 (higher of the two 2020 targets assessed in the Jaccard report) objective for 2020, assuming these large industrial facilities will be obliged to cover only "their fair share" of national GHGs, under the regulations. This is conservative because most regulatory proposals, including the plan outlined in the TD/Jaccard/Pembina/Suzuki report propose to assign a disproportionately large share of national reduction obligations to large industrial facility operators.
In the 2nd last column, I multiplied the industrial emission reductions required, relative the 2007 actual discharges, by CAD$40/TCO2e, the lowest cost of compliance suggested in any scenario in the TD/Pembina/Suzuki report. In the last column, I multiplied the reduction mandate by CAD$200/TCO2e—the highest price proposed by Jaccard—just for a point of reference. Then I divided these new tax costs by the populations in the communities at risk.
So, this table tells you that if, for example, the government of Canada obliges all large industrial GHG emitters to buy Canadian GHG quota ("allowances") or foreign offset credits to cover 100% of their GHG emissions every year (as generally proposed in the TD/Pembina/Suzuki report), and the plant operators can either acquire these compliance certificates or find a way to cut emissions in their operations at a cost no more than CAD$40/TCO2e, then proposed industrial legislation/regulation will cost the regulated companies operating in, say, David Christopherson’s Hamilton Ontario riding, the equivalent of $1,225 in new industrial taxes per year per man, woman and child living in the riding.
For the citizens of Restigouche, New Brunswick, it means $440 per year in new taxes per man, woman and child resident in the community. For Kenora, Ontario, it is $552/person per year
The only condition under which the government of Canada can raise the new revenues required to execute the Jaccard GHG plan is that the 30 listed communities remit these new tax amounts to Ottawa starting in 2012, with the tax rate increasing 5 times by 2020.
This table raises many, many questions.
Slide 3 shows you that only 25 corporate entities own facilities that account for 78% of reported Canadian industrial GHG emissions and 30% of nation-wide GHG emissions. Remember, there are no industrial GHG reductions unless/until the equipment in the plants that these corporations own is removed and replaced (or not replaced).
If we add 10,000 MW of wind power generation capacity to Canada’s electricity supply, we achieve not one single TCO2e in GHG reductions.
To achieve GHG reductions, we have to decommission equipment and vehicles that burn fossil fuels. How much government infrastructure and payroll does the Jaccard/Suzuki/Pembina plan put in place (at what cost) to achieve the decommissioning of/expropriate and eliminate at least 50% of the Canadian assets of these 25 corporations?
Does it make sense to build a $70 billion per year federal spending initiative for the sole purpose of restructuring 25 companies?
Slide 4 shows you tables from the official UK 2006 Budget documents that explain why the British Parliament reversed its high fuel tax policies of the 1990s in 2000. The official budget documents show that financing income tax cuts with new energy taxes made the UK tax regime much more regressive and also highly inefficient. This has happened everywhere else in Europe and is why all but one EU nation started cutting back carbon/CO2 taxes sometime between 1998 and 2004.
The one nation that did not cut back carbon/CO2 taxes froze the tax rate. What the large table shows is that all consumption taxes (including VAT/GST) eat up way more of poor families’ disposable incomes than wealthy families’ incomes. So when you shift the tax system from income to energy consumption taxes, you shift tax burden from rich to poor.
Jaccard says that we can address this by feeding tax rebates to the low income families from the revenues from GHG quota sales. The small table on slide 4 shows you that the UK did just that. But high energy prices lead to industrial plant shut downs and job losses, and new government energy tax revenues never met budget expectations.
More importantly, the new industrial tax revenues were never sufficient to fully finance the rebates required to rebalance the increasingly regressive tax regime to neutral or progressive. By 2006, the UK taxman was delivering more value in cash and benefits to families in all of the bottom 3 quintiles of income earners than they were collecting.
How does that happen? If the tax system operates efficiently it costs about 10 cents on the dollar to collect taxes and 20 cents on the dollar to administer the process of rebating these taxes right back to 3/5ths of the families from whom they were just collected. This is a highly, highly inefficient process.
At this time, UK government deficits would decline if the UK Parliament simply exempted 3/5ths of families from all taxes (income, sales, property, etc.) AND cut the marginal tax rate for the top 2/5ths of income earners. The reason they could raise revenues while cutting tax rates for the top 2/5ths is that after they eliminate cost of administering the tax revenue collection and turnaround programmes, the government’s operating costs (fully financed by the top 2/5ths of income earners at this time) would actually go down.
Dr. Jaccard’s recommendations take Canada to the very picture on slide 4 that the UK Parliament has been trying to get out of since 2000.
The "green jobs" promise? Look at slide 6.
How has the EU found it so easy to comply with their Kyoto commitment? Look at slide 7.
Energy Probe 