(Sept. 07, 2010) The myth that carbon/energy taxes translate into green goods-producing job growth is namely that, a myth. In fact, 100% of the incremental job growth in carbon/high energy tax policy-dominated nations has been in the public sector, as goods-producing jobs flee.

For this reason, every nation that introduced carbon taxes/high energy tax policies between 1990 and 1999 has since elected to directly or indirectly reduce their dependence on these highly regressive consumption taxes. The first illustration below shows you changes in goods producing and government jobs, as well as national GHG levels, among key nations.

Note that Canada is the only nation listed that has not realized an absolute reduction in goods-producing employment over the covered period.  While Canada’s government-to-goods-producing jobs ratio (the ratio showing how many government jobs each goods production job is required to support in each economy) has grown, Canada had the lowest rate of erosion in this key ratio among the listed countries. Only Canada and the Netherlands realized total employment increases (including public sector jobs) on track with population growth.

In this table, “goods producing” includes all jobs in forestry, agriculture, fishing, mining, manufacturing, energy production, public utilities and construction. “Public sector” means jobs that are directly, permanently and 100% financed from tax revenues—which is why only a portion of US health sector jobs are included in the “public sector” job count for the US.

A critical error in the economic modelling of GHG mitigation measures that has been completed by and for the NRTEE, Suzuki Foundation and TD Bank is that the models employed value a job in the public sector as equivalent to a job that is privately financed. The models and NRTEE reports forecast that the “put a price on carbon” policies they recommend will result in a shift in total Canadian employment from the private sector to public and rate-regulated industries and that no reduction or constraint in flow of private investment capital into Canada will occur as our shift to a public sector-dominated economy results.

That European tax models have resulted in an unhealthy economic shift should be most apparent to those of you who work in western Canada’s forest sector. Since 1990, much of the EU27’s value-adding forest economy has shut down and EU public rate-guaranteed utilities increasingly depend on wood pellet feedstock imports from Canada—BC, in particular.

Published European economic performance data clearly shows that policies that drive up public sector spending as a % of GDP drive out private capital investment. So the economic models on which these key policy promoters rely are unrealistic in a critical manner.

The second table below gives you a glimpse of Swedish employment trends and how they more-or-less correlate with Sweden’s introduction and then phasing out of its national income to energy tax shift.

Sweden shifted overall governments’ tax burden from income to energy consumption taxes over the period 1990-1992.  Between 1996 and 1998, Swedish officials started to examine the impact of the tax shift on employment trends.

Over that period, Sweden ruled that all energy consumed by power generators, oil refiners and other key value-adding businesses would be 100 exempt from the Swedish CO2, SO2 and NOx taxes. To see all EU nations’ environmental tax exemptions listed go here, the European Enviornmental Agency and OECD Economic instruments Database, scroll to the near-bottom of page and click on “Exemptions in Environmentally Related Taxes.”

The important net results of the introduction of significant industrial exemptions from Swedish environmental taxes include:

• A significant but unsustainable shift of Sweden’s overall tax burden from the private sector to the public sector.  Private corporations pay income taxes but do not pay environmental, energy or VAT taxes. All public sector agencies, hospitals, universities, schools, etc. do not pay income taxes but pay all energy consumption and VAT taxes. So when the Swedish government financed reductions in income tax rates (and/or cancelled scheduled increases in income tax rates) with revenues from new energy consumption and VAT taxes, that government shifted tax burden from the private to the public sector. In order to absorb the new tax burden, government agencies and publicly-funded institutions had to cut services and increase service fees.  The net result was that mandatory health care and social insurance premiums and payroll taxes increased at more than 5 times the rate of increase in posted (but not always collected) energy tax rates.

• Over 2000 to 2003, Sweden went further to offer exemptions from all energy taxes (not just environmental taxes, but including excise taxes and all duties) to any “energy intensive business” that could maintain sales while passing tax costs through to customers, where an “energy intensive business” is deemed to be any business for whom the costs of energy (fuel and electricity) combine to account for 3% or more of production costs.

• After Sweden introduced environmental and energy tax exemptions for key energy-intensive industries were in full effect (by 2002), the goods-producing jobs count in Sweden slowly started to recover.

Note that total employment in Sweden, including all private and public sector jobs, declined absolutely from 1990 through 1999 and did not recover to 1990 levels until 2007.

I am an ardent advocate for GHG regulation in Canada and the incorporation of market measures in that regulation. But consumption and production taxes and quota-based supply management (“cap and trade”) are not among the proved policies I recommend for BC, Alberta or Canada.

Whenever we have been serious about fair and efficient achievement of an environmental, health or safety objective, we have most efficiently achieved that objective with product standards, not consumption taxes or production limitations.

The key to efficient product standards is that government neither: (1) sets price or (2) designs the new products required to comply with our new product standards. Efficient product standards leave it to the market to compete on price and innovation. Consumption taxes and quota-based supply management regimes stifle innovation, limit the return on competition and the latter (the quota-based supply management regime) delivers massive new market power to traditional market incumbents at the expense of innovative new market entrants or incumbents who wish to and are able to innovate.

Unfortunately, all of the economic models that have been employed by the BC government and the NRTEE, to date, to evaluate different GHG management policy options treat production taxes, consumption taxes, quota-based supply management and product standards as identical economic measures.  In this regard, the academic modelers err gravely.

Aldyen Donnelly, September 7, 2010