Fraser Forum

Alberta carbon tax will fund bureaucratic expansion, redistribute wealth of Albertans

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Alberta Minister of Environment and Parks Shannon Phillips recently introduced Bill 20, the Climate Leadership Implementation Act. If there was any doubt that Alberta’s climate plan is little more than expansionary tax-and-spend government, the details of the legislation should lay those doubts to rest.

As the Globe and Mail reports, the budget tabled by the government in April forecast revenues from the carbon levy of $9.8 billion over five years. Some of that money will be redistributed to lower-income earners, and some will be given back to small businesses as a reduction in Alberta’s small business tax, but at the end of the day, the government expects to net $6 billion to fund a giant green energy spending spree.

According to estimates in the Edmonton Journal, the new tax scheme will cost a family of four about $338 extra in 2017, rising to $508.00 in 2018 in direct energy costs, and another $70 to $105 in “indirect costs,” that is, when products and services have to increase in price as a result of the tax on producers and service providers.

The legislation at about 100 pages long includes three acts, one to establish the carbon tax, one to allow for reductions in small business taxes, and one to create a new Crown corporation with which to spend the tax revenues, called “Energy Efficiency Alberta.”

The mandate of this corporation is: (a) to raise awareness among energy consumers of energy use and the associated economic and environmental consequences, (b) to promote, design and deliver programs and carry out other activities related to energy efficiency, energy conservation and the development of micro-generation and small-scale energy systems in Alberta, and (c) to promote the development of an energy efficiency services industry.

But as we pointed out in a recent study by the Fraser Institute, this approach to managing greenhouse gas emissions has been tried—and failed—repeatedly in both the United States and Canada. Ontario has done a masterful job at avoiding transparency with regard to the benefits of its “demand-side management programs,” despite spending some $400 million on efficiency programs in 2013 alone. But a landmark study from the United States suggests that most of that money is likely wasted.

As authors Ross McKitrick and Tom Adams observe:

An important study in 2015 out of Berkeley University looked at participants in the US Weatherization Assistance Program (WAP). This home retrofit program has been in operation since 1976, but in 2009 the budget was increased more than ten-fold to $5 billion annually. What makes this study particularly important is that the authors were able to construct a randomized sample of program participants and non-participants, making it the first ever experimental test of a major energy conservation program.

An apparent puzzle in the energy literature has been the low level of voluntary investment by households in efficiency improvements that, according to engineering estimates, would save them money. The Berkeley study shows that households were right and the engineering models were wrong. The study found that, on average, engineering models predicted 2.5 times more energy savings than were actually realized. And the cost of the energy efficiency program per household was about twice the value of the energy savings. In other words the program cost two dollars for every dollar saved in energy, even after accounting for the value of reduced air pollution emissions.

And as researchers at the Breakthrough Institute have found, efficiency programs are subject to the “rebound effect,” also known as the Jevon’s Paradox. If you actually do make things more energy efficient, people tend to use more energy. They buy more energy-consuming products, potentially wiping out potential reductions in either energy consumption, or emissions related to it:

At the economy-wide, macroeconomic scale, the aggregate impacts of widespread energy efficiency improvements can lead to substantial rebound effects. As producers and consumers respond in turn to various cascading changes in the price of goods and services, the pace of economic growth quickens, and market prices for fuels may fall, driving further rebound. A number of 'Computable General Equilibrium' (CGE) models generally show rebound at the scale of a national economy at 40 to 60 percent for developed economies, and 50 percent to much greater than 100 percent (‘backfire) for developing economies.

Alberta’s new climate plan, by the government’s own admission, will not lead to significant greenhouse gas reductions for many years, if it ever does. The tax is far too low to have significant impacts on consumer behaviour, which is further proof that it is not “market-based carbon pricing,” it’s a funding mechanism for bureaucratic expansion of failed efficiency programs, a mechanism for redistributing the wealth of Albertans, and a green fig leaf for an Alberta government that wants to look as if it’s proactively promoting “social license” for the continued development of Alberta’s oilsands. Alberta’s new carbon tax should be called what it is: Alberta’s new Provincial Sales Tax.

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