Canadian Politics from Canada's Centre

Wednesday, June 21, 2006

Creative Taxing Can Save the Environment

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My economics prof, Mr. Philippe Ghayad, whom attentive readers will recognize for his contributions to correcting me here on purchasing power, trade imbalances and other posts on economics, has sent along an editorial entitled Creative Taxing Can Save the Environment. While I agree with the basic argument that fiscal policy can work to protect the environment, I just want to slip in a note about some things my economics prof wrote in the introduction concerning the science of global warming.

Mr. Ghayad writes in his introduction to challenge the reality of global warming.
He says that not all scientists agree on global warming. While that may be true, the overwhelming majority do. As can be seen in Al Gore's An Inconvenient Truth, which Mr. Ghayad conveniently mentions, 100% of peer-reviewed articles on global warming published in scientific journals (928 of them) recognize its existence.

My prof also suggests global warming can be explained by cyclical factors. Gore's movie refutes the notion of global warming being explained by cyclical trends. If I recall correctly, this was done by showing recent warming is multiple times beyond what's been seen in the past.

The editorial refers to the ozone recovering as a sign that global warming isn't really such a big deal. The ozone is another environmental issue; it keeps sunlight out, while greenhouses gases keep it in. Therefore, if the ozone is recovering and the planet is still getting hotter, this is in fact proof of how dire the situation is.

Finally, Mr. Ghayad asks how, if we can't predict the weather three days from now, we can tell that global warming is happening. Compare apples with apples, that's how; we can't predict anything in the future, it's true, but we can evaluate past events to determine what the trend is, and such historical data mining shows global warming.

That having been said, Creative Taxing Can Save the Environment is nonetheless a great editorial. It highlights a number of ways that fiscal policy can help reduce pollution and sanitize our living conditions, and gives examples that help make the topic easier to understand. As to the criticisms I made above, they don't take away from the quality of the article in any significant measure. I'm publishing this for its economic insight after all, not because of the ideas on global warming. I encourage you all to read the following attentively.

Creative Taxing Can Save the Environment

by Philippe Ghayad, Concordia University and Dawson College Economics Professor

Even with the opening of Al Gore's documentary, An Inconvenient Truth, about the increase in global warming, it might still be hazardous to confidently claim that humans are destroying the environment at an unprecedented rate. The reason being is that it is a difficult variable to calculate and not all scientists agree on the issues at hand.

In one corner, a group of scientists believe that human activity is destroying our forests, water sources, glaciers and the natural habitats of animals. In the opposite corner, another group claims that the environment is cyclical and it is very hard to extract a global trend since the data is limited or unreliable. If we cannot even predict with precision what the temperature will be like in three days, how can we claim to know what is happening on a global scheme? Furthermore, a recent study done by Betsy Weatherhead , University of Colorado, shows that the ozone layer seems to have stabilized and might actually be on the recovery. Is this due to the Kyoto protocol or due to some natural downturn in the environmental cycle?

Regardless of which group of scientists is correct, human beings should not squander environmental resources. The problem is that the very act of staying alive requires that we use energy and that we produce waste (even in the act of breathing we create CO2 which is an emission that causes global warming!). Given this truism, how can we punish people for being wasteful? One way is to hurt them where it counts: their wallet.

Why does my neighbor wash his car every weekend even though his car has barely accumulated any dirt in a week? Because the cost that he bears in doing this activity is minimal. There is no water tax in my area and so he can wash his car several times in one day without having to pay for his main input: water. A "green tax" would alleviate this problem. A tax on water usage or a water counter (like Hydro-Quebec does with electricity) would create a deterrent to waste our most precious resource. This practice is used in Europe. "Green taxes" would force people to think twice about participating in activity that is detrimental to the environment.

Another example? How can we get people to purchase less SUVs that are less fuel-efficient than smaller cars? Simply tax the purchasers of these cars more. We could even go one-step further: tax gasoline consumers even more (note: in Quebec about 40% of the gas price paid at the pump is the sum of different taxes). We should not only pick on drivers though. Households that have inefficient chimneys pollute more and create more smog than cars do. A fiery chimney on a cold winter night is so cozy and snug... but so damaging to air quality! Make them [polluters] pay for the inconvenience that they impose on others.

Moreover, the money collected from these "green taxes" can be invested in activity that is beneficial to the environment, such as more efficient or more comfortable public transportation. This would hopefully convert even more drivers into users of public transportation. The objective here is not to get everyone off the road. This is an impossible task since some citizens need their car to work such as sales people or delivery workers and others probably save a lot of their time by using their car compared to public transportation. However, everybody has a price that they are willing to pay in order to use their car versus public transportation. Governments need to find ways to sway those drivers whose price is relatively low.

The money generated from these taxes can also be used to create incentives such as direct tax reductions. These incentives can rage from tax reductions on the purchase of hybrid cars to the purchase of electronic and energy saving thermostats by households.

The government has the power to directly turn its citizens into environmentalists without them even being aware of it. The problem is that politics and votes get in the way... and that's a whole different ball game.

If you want to keep current with issues in economics, the environment and with Professor Ghayad's insights on fiscal policy and the environment, which I hope he'll continue to share with us, consider our free newsletter. It's sent out twice a month. Here are some related articles:

Elizabeth May on the Canadian economy and the environment
May's economic and environmental thoughts, part 2
Interview with Elizabeth May, Green Party leadership candidate Part 1 of our interview with the famous environmentalist

Related articles are archived in the topical categories , , , , .


At 12:24 a.m., Canadian Politico Anonymous Paul Ghayad said:

I think Mr. Ghayad's unique ideas to save the environment are ingenious! I find it interesting to assign small taxes on little faults within society. Eventually, the taxes will gross a large sum of money to be used for an new, innovative environmental tool.


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