Good Intentions, Green Policies, and the Poor

Commentary, Energy, Environment, Poverty, Rebecca Walberg (historic), Role of Government, Uncategorized

A surprising fact that has received very little attention during the 2008 Canadian election debate is how certain energy policy initiatives, such as the Kyoto protocol or carbon taxes, will have a disproportionate impact on the economic lives of the poor. The omission is especially noteworthy given that one function of politics is to reconcile competing interests in society; a healthy democracy will ensure that groups that lack both power and representation are protected from the agendas more powerful groups are trying to impose.

Energy policy is a useful example of how elite policy can create costs that are overwhelmingly inflicted on the poor, as work in other countries makes clear. The Copenhagen Consensus, a group led by Danish environmentalist Bjorn Lomborg, has successfully drawn attention to the ineffectiveness of most proposals to curb climate change. The Kyoto protocol, for example, is projected to lower the temperature of the earth, if fully implemented, by less than one tenth of a degree over fifty years. This change is negligible, especially when compared to the variability in global temperature caused by solar activity and other natural phenomena.

While the benefits of Kyoto and other similar schemes, such as carbon taxes, are vanishingly small, their costs are high. If Kyoto were enacted in Canada, total costs would be $21 billion per year. All emissions-reduction plans rely, in one way or another, upon reducing the energy supply and thus they increase the cost of using energy.

In theory, this will induce both companies and individuals to be more efficient, and to find new ways of doing business that are less energy intensive, although the costs of these adaptations will certainly be passed on to consumers in the form of higher prices. In practice, that means more expensive transportation, heat, manufactured goods and groceries, as well as higher prices for anything that is shipped across significant distances to reach consumers, which in Canada includes almost everything.

This burden will not be borne equally which is why this issue is best understood as a policy favoured by an influential clique and harmful to the majority of Canadians who are not as well off. For a sense of how it might impact Canada’s poor, consider data on effects in the United States from the Congress for Racial Equality (CORE), an American civil rights advocacy group; CORE provides a stark picture of just how punitive some environmental measures can be.

Escalating fuel costs harm the poor disproportionately, acting as a de facto regressive tax. Thus, American families at the median income level pay 5% of each household dollar for energy costs, and families with lower incomes spend 20% of household funds on energy, while households under the poverty line see fully half of their budget spent on gas, heating, and other fuel costs. In Canada, as in the US, certain minorities are disproportionately poor. Artificially inflating fuel costs is therefore not only an issue about class and wealth, but about race, and the disparate impact of carbon taxes and related policies must be acknowledged.

The pernicious nature of high energy costs takes other forms, as well. Hybrid and fuel-efficient cars are growing in popularity, and the demand for them is increasing not only out of concern for the environment, but also a desire to pay less for gas. Middle class households are more likely to have newer cars, and to keep them well maintained, both of which increase fuel efficiency. Families whose budget can scarcely cover groceries and clothes for the kids must make do with older cars in worse condition, which means that gas eats up still larger a share of their total income.

Energy efficiency at home causes similar problems. Different levels of government currently offer a range of tax breaks designed to encourage homeowners to install better insulating windows, to re-insulate attics and walls, and to install more efficient water heaters. For households considering such renovations, a tax credit might make the decision easier. For families that live close to the poverty line, though, not only is the money to pay for these improvements hard to come by, but a tax credit is of little value, since poor families pay much less tax.

Canada prides itself on a strong social safety net with equal opportunity for all. We have a tradition of progressive taxation and means-tested programs and subsidies, designed specifically to ease the burden on the poor. Pushing energy prices higher puts a higher strain than ever on lower income households, and tweaking tax breaks for homeowners does nothing to help this demographic. The fact that the end result of these changes would be less than 0.1 degree adds insult to injury. Is this the sort of public policy Canadians want or need?