Burn the Money: The Grossly Misleading Saskatchewan Government Report on the Cost of a Carbon Tax
Recently, the Government of Saskatchewan in conjunction with the Institute for Energy, Environment and Sustainable Communities at the University of Regina released a grossly misleading, seriously flawed study on the impact of implementing a carbon tax on the provincial economy. Based on this report, the government has attempted to justify it’s position that carbon pricing in Saskatchewan would be overly costly while accomplishing little to reduce greenhouse gas emissions. These conclusions contrast the vast body of serious academic studies and the accumulating global evidence from existing carbon pricing systems as to the cost and effectiveness of applying a price to pollution.
A recent study from Stanford University estimates that the cost of damage from extreme weather events, sea level rise, loss of agricultural productivity and other outcomes of 2.5-3°C in global warming will reduce end of century per capita global economic output by 15-25%. With a 4°C increase in temperatures, economic performance is projected to drop by more than 30%. Inadequate action on our part over the next 20-30 years to combat climate change will impose extreme costs and hardships on future generations. A Yale University study estimates a 4.25% annual rate of return on investment in climate action plans designed to effectively mitigate future climate damage. Simply put, investing in effective climate action plans in not only an obligation to future generations but an exercise in common-sense economics.
A properly designed economic analysis on the impact of carbon pricing will include a cost/benefit analysis. However, the analysis employed in the Saskatchewan government-funded report does not consider the benefits of mitigating climate change. Further, the analysis is restricted to 3 scenarios that do not begin to approach the cost efficiencies of a well-designed climate action plan. In 2 of the scenarios no consideration of redistribution of carbon fees is considered. Under these scenarios, the revenues from carbon fees simply vanish. The third scenario assumes that revenues are distributed to households without provisions for refunds to industry or any other considerations. This scenario is less costly than the “burn the money” scenarios but is far from an ideal plan tailored to the specifics of Saskatchewan’s economy.
A well-designed made in Saskatchewan climate action plan would be based on a combination of carbon pricing mechanisms and policies adapted to the specific circumstances of the provincial economy. The Saskatchewan government correctly points out that the relative contribution of emissions intensive trade exposed industries to the provincial economy is greater than is the case for Ontario or Quebec. These industries can be protected through the implementation of a hybrid carbon pricing/trading system of output-based trading allowances. This would be supplemented by additional carbon fees and policies with targeted exemptions. In a revenue neutral system, carbon fees would be distributed to households, farmers and industry using formulas designed specifically to fit the specifics of the economy of the province.
Canada’s Ecofiscal Commission concludes that carbon pricing with well-designed systems of revenue recycling will be effective in reducing emissions without significant impacts on the Canadian economy. Actual net costs extending to the year 2032 are within the margin of error in predicting future GDP growth rates.
Rather than assessing a well-designed Saskatchewan-specific program of carbon pricing and climate policies, the study focuses on absurd scenarios that ignore revenues from carbon fees or at best restrict revenue recycling to households and thus fail to support industry. Not surprisingly, based on this report, one can conclude that it is costly and inappropriate to burn the money of the people of Saskatchewan. The government should consider a responsible alternative and burn what is a grossly misleading, incomplete, and biased report on the costs of carbon pricing to the Saskatchewan economy.