Wednesday, April 30, 2008

The Conservatives and Carbon Chaos

Neil Reynolds has a column in the Globe and Mail business section today (April 30, 2008) bemoaning the multiplicity of directions that the provinces are headed in dealing with climate change motivated carbon-control measures. He observes that the measures are inconsistent; are full of holes designed to favour pet industries; have the potential for corruption; and are generally headed toward creating chaos across the country. What he advocates in the end is sensible (although I am not sure enough) but the current Federal government's ideology around a number of matters will stand in the way of it ever happening. Here is where Reynolds lands
Prof. Nordhaus would jettison cap-and-trade (which is “conducive to corruption”). He would jettison Kyoto. He would jettison coercive regulation – including fuel efficiency standards for cars. He would start with a very modest but universal tax on all fossil fuels and increase it gradually over coming decades.

You can't afford financial error in the beginning, Prof. Nordhaus warns, because time multiplies small errors into catastrophic consequences. People, he says, need to understand the dynamic of future dollar discounting: “The funds used to purchase Manhattan Island for $28 in 1626, when invested at a 4-per-cent real interest rate, give you the value of all the land in Manhattan today.” Time turns a few dollars, in other words, into trillions of dollars. And the maximum investment we need to reduce greenhouse gas emissions, he says, is $3-trillion – measured in 2100 future discounted dollars.

For economic efficiency, Prof. Nordhaus would exempt no one from a modest carbon tax – not farmers, not the aged, not industry. “If you exempt half of the economy because of politics,” he says in his illuminating 2007 report, The Challenge of Global Warming, “then the cost of obtaining your objective rises by 250 per cent.”

Prof. Nordhaus quotes Leonardo da Vinci on the design of complex solutions: “Simplicity is the highest form of sophistication.” Keep it simple, he says. Choose the best single policy option you have – “and implement it slowly, steadily, predictably and boringly.”

The reality is that the Federal government could do this at any time except that (1) the Federal government does not believe in climate change (except as a political expedient) (2) the Federal government does not believe in bringing order to Canada if it means interfering with the provinces and (3) the Federal government does not believe in taxes. Of course, the ever increasing price of oil and natural gas may be its own tax in the end and end up doing what a sensible climate change policy should do.

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