As Canada gets ready to elect a new government, energy and environmental policy are on the front burner. The Liberal “Green Shift” plan conforms to two of the “first principles” of liberal governance: maximizing wealth redistribution, and maximizing control of the commanding heights of the economy. Liberal leader Stephane Dion’s plan would satisfy both principles by levying a federal carbon tax, then doling out the revenues “progressively” while letting the federal government expand its control of the commanding heights of the energy sector and provincial governance by tweaks of the tax code generally invisible to the public. In case anyone doubts Dion’s redistributionist focus, consider that the goal of fighting poverty is mentioned a dozen times in the Green Shift plan. Higher income earners will receive no offsetting tax reduction under Green Shift – their carbon tax payments will be redistributed to low and middle-class taxpayers. Lower-income earners will receive additional social programs support, particularly for those with children.
Stephen Harper has (rightly) come out against Dion’s Green Shift (a skewed form of eco-taxation), but does not offer an alternative that embodies conservative principles in the way the Green Shift embodies liberal principles. It is hard to find a fundamental “guiding principle” behind conservative environmental and energy policy in Canada (or in the United States) to compare with the Green Shift. On environmental issues, Harper has embraced regulatory solutions over economic instruments, while no coherent “guiding principles” have been put forward for conservative energy policy.
But there could easily be a conservative alternative, as the core principles of energy and environmental policy from a conservative perspective can be summed up in three lines: 1) remove distortions of supply and demand; 2) internalize externalities with user fees; and 3) let the market work. Call it the conservative “Power Shift,” as it shifts power away from government, and over to consumers. What would the conservative power shift mean in practice?
Remove distortions of supply and demand
First, as people who understand that subsidies lead to irrational market distortions and unintended consequences, conservatives should be against subsidies – all subsidies. They should eschew subsidies for windmill or solar-cell producers just as they should for oil-shale developers. They should eschew tax-credits for people who put solar panels on their rooftops, buy alternate-fuel vehicles or use mass-transit. They should resist uneven tax or royalty treatment for different types of energy production; oppose regulations requiring municipalities to obtain a certain percentage of energy from a certain source; and so on.
Thus, conservatives should reject giveaways such as that in the 2007 federal budget, which gave $2 billion dollars to the biofuel sector despite warnings that biofuels were raising food prices around the world. But they should also give serious attention to claims by groups such as Pembina Institute that the Canadian government gives $1.2 billion per year in tax breaks to the oil sector, and root those out as well. Another example of bad subsidization is the $20 million dollar subsidy that the federal government is giving to each of 15 wind-power developments across Canada.
Likewise, requirements in the Climate Change Plan for Canada that large purchasers of energy (like the federal government) waste taxpayer dollars buying over-priced “renewable” power, and initiatives aimed at insuring that 10% of power be generated “renewably” should be revoked. Key to implementing such a programme is even-handedness: the search for subidies to eliminate should be ruthlessly even-handed, and probably begin with the oil, gas, and nuclear sectors first. This would go a long way toward showing Canadians that the effort is about principle, not favoritism. Over time, the goal should be to strip away subsidies to all forms of energy in order to create a level playing field, appealing, again, to Canadian’s sense of fair play and honest trading.
Internalize Externalities With User Fees
Conservatives also know that the best way to control use of a shared resource is with user fees, and they should apply that knowledge to the the atmosphere which is the ultimate shared resource. The idea of an atmospheric “user fee” is far more consonant with conservative principles than are regulations, or dressed up tax-schemes like Dion’s Green Shift. Thus, conservatives wishing to reduce public exposure to particulate matter, for example, might impose an atmospheric user fee on activities based on their particulate production sufficient to offset harms to persons or property. They might impose emission fees on vehicles, congestion fees on highways, and so on. Revenues from such fees would ideally be put back into the economy as broadly and fairly as possible to prevent slowing of economic growth without intent to redistribute wealth. The same would be true of greenhouse gas production, if one believes that greenhouse gas emissions have caused, and will cause damages to people’s health or property. Emission fee revenues should be rebated broadly, without efforts to allocate rebates to favored political or economic classes. Though it would look like a huge about face, and might have to wait for a post-election setting, Harper’s conservative government should consider coming forward with their own atmospheric user-fee plan, one that imposes a user fee based on the carbon content of fuel used, with the revenues rebated to taxpayers in proportion to their demonstrated increase in energy costs.
Let Energy Markets Work
The last step “let energy markets work” would be the most challenging step of all, as governments, at all levels, have incentives to meddle in virtually every element of the economy, and conservatives are dreadful at explaining the proven realities that open and competitive markets paired with strong property rights to person and property are the wellspring of well-being in the developed world. Liberal incitements to envy based on the profitability of the energy sector have always, and most likely will always find fertile ground with part of the electorate. But the conservative impulse must be to reject such politics of envy, and remind people that markets, and not mandates are what put the food on their tables, the clothes on their backs, the roof over their heads, and yes, the prescription drugs in their medicine chest in the most efficient way ever devised by humanity. Only functioning energy markets can match consumer demand for energy and environmental quality with the needed supply at the optimal price for social welfare.
A conservative “Power Shift” plan for energy and environment is simple to express, but would be challenging to implement in Canada’s current political climate. Given recent events in the financial markets, trust in anything using the word “market” will be scarce for years, and possibly decades to come. But conservatives have an obligation not to let the baby be thrown out with the bathwater, and when it comes to energy policy, conservatives should stick to their demonstrably true story: only markets can meet people’s needs, and subsidies undercut the potential of markets.
A Conservative “Power Shift” agenda would produce a Canada where the combined desires of Canada’s 33 million consumers lead to the optimum supply of energy and the environmental characteristics people want, at a price people are willing to pay. That’s worth an uphill battle.
This article has been reprinted from the October 2008 issue of C2C Journal, Canada’s journal of ideas.