Silly Little Country

Carbon Tax Part 2

OK at 3pm today the wholesale electricity price was just under 32 cents per kWh. My previous post shows how you can go watch this action in real time (well, hourly updates). The rate I am paying for that same electricity is under 7 cents, maybe under 6. Shameful.
I was pleased to see a San Francisco Chronicle article on this topic, by a professor from Berkeley identifying another collection of politically produced, and utterly disgusting, subsidies, and he explains handily what is wrong with them.
This passage captures brilliantly how I characterize the behaviour of the ontario government in this electricity fiasco:

Another problem with subsidies, even if they discriminate good ethanol from better ethanol, is that they simply misinform us about the cost of our behavior. Driving your car with a gallon of ethanol doesn't do 50 cents worth of good for society, it just does less damage than driving it with gasoline. The subsidy certainly does a lot of good for the folks who sell ethanol, especially agribusiness giants, such as Archer Daniels Midland, who are nicely situated to lobby Congress for more subsidies. Most people think it is wrong for the government to lie to its citizens, but there's no other way to portray ethanol subsidies: Your government, by distorting the price you pay so it doesn't reflect real costs, is lying to you.

(Another small plug for Tim Harford's The Undercover Economist - in which the same language about truth is used in a similar way.)

Do I hold up much hope for sensible behaviour from our government on this front? Our Prime Minister is an economist, and it will be interesting to see how he decides to handle the political presure about Kyoto, and the real concerns about climate. But looking at the Liberal party, one of our candidates said the words "Carbon Tax" and pretty much had the universe descend upon him.

To quote the Chronicle article again.

A carbon charge (which analysts say should increase gas prices anywhere from a nickel to as much as $1.50 a gallon) would make gasoline, oil, coal and natural gas reflect their true cost. It would make ethanol or biodiesel much more expensive if manufactured with coal, and somewhat more if manufactured with natural gas, than those fuels made with minimal fossil fuels -- which is how it should be. And it would set in motion a cascade of adjustments through the economy that wouldn't have to be coercive (like the current federal fuel economy standards for cars) and wouldn't have the very expensive errors inevitable with subsidies and regulations.

Of course this 'tax' should be returned to people in some way indifferent to fuel and carbon usage so the ultimate effect is revenue-neutral. And it should likely be charged on more than simply pump prices for gasoline, for example, on electricity.

As pointed out in the end of the article, the world would be much better aligned than it is today, in California, and certainly than in Ontario:

We'll have, as a society, just as much money to spend, but the price of everything will quietly but honestly go up or down to signal what you're doing to the planet by using different fuels (and things made with different fuels). People who find ways to burn less carbon will be better off, people who don't, will not. That's rational policy, fair policy and a policy people can understand and vote on.

posted by Alan Adamson @ 5:37 PM