Carbon tax in Canada
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The New Year hailed a wide variety of news that will certainly change the economic landscape for years to come. One of them is Alberta’s carbon tax, which is a prelude to the wider federal government initiative to tax emissions all over Canada from 2018 onwards. The tax already changed what used to be conventional wisdom; Alberta no longer has the cheapest gas prices in Canada. But this new tax initiative is also challenging a number of other assumptions that the Canadian government – and other around the world – should study in depth before implementing a Canada-wide carbon tax.

Carbon Taxes in Alberta an Experiment for Canada and the World

Government policy often defies the logic of empirical scientific research. In the case of carbon taxes, governments should be measuring emissions per capital before the tax and after the tax in order to establish if the policy meets the goal of bringing carbon emissions down. In the case of Alberta and Canada, only time will tell. The government is not pursuing this empirical approach actively, so the degree to which this carbon tax experiment will succeed, is anyone’s guess.

Taxing Harmful Consumption

Indeed, carbon taxes in Alberta and later in Canada, might prove that a tax that seeks to hinder harmful consumption – apart from being paternalistic – might not always meet its goals. To illustrate this point, it is possible to look at taxation policies on other sources of energy that are associated with another kind of popular liquid in the market: artificially sweetened beverages. Sugary drinks and fuel at the pump have more in common than many would think:

  • Both provide energy.
  • The consumption of both – especially when done in excess – is detrimental to public health.
  • Gas and sugary drink producers are not held accountable for the negative externalities they produce.

No Goal without a Substitute

The basic distinction between Gas and artificially sweetened beverages, is that for one there is a substitute in the market that will not have a negative effect on consumer finances, while the other doesn’t have one. Any person who wants to stop drinking artificially sweetened beverages, or like Canadians would say, pop, can do so and buy oranges to make juice or just drink water. On the other hand anyone who wants to stop using gas, has to basically alter their lives completely. Even if a consumer wants to purchase a Tesla to avoid part of the carbon taxes, that consumer will have to wait at least a year to get the car and will have to go through many other inconveniences and additional costs to be able to use it.

Albertans and Canadians will Breathe Polluted Air despite the Carbon Tax

Therefore logic dictates that the carbon tax will fail to curb pollution. Consumers will have to absorb the cost of the tax and cut expenses elsewhere in order to be able to carry out basic day to day activities, like heating their homes during winter. Pollution levels will remain the same or will even worsen because consumers have no alternative. This is why the Albertan carbon tax and the Canadian version which will come into effect in 2018, will show policy makers how not to make environmental policy. The feedback from the effects of a carbon tax in Alberta however, will not change the actions of the Canadian government or for that matter of any other government in the world that is bent on finding another way to fill its coffers without solving the problem.

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