New Report Shows Economic Benefits Of Carbon Taxes Overstated
A new report by the Fraser Institute debunks the most common defense of carbon taxes by the Trudeau government, the Green party, and other supporters — that the cost of doing nothing exceeds the cost of taking action.
The report by Guelph University economist Ross McKitrick for the fiscally-conservative think tank — Apples to Apples: Making Valid Cost-Benefit Comparisons in Climate Policies — says the problem is that politicians don’t understand basic economics.
This leads to inaccurate claims, as made recently by the Green Party of Ontario, McKitrick says, that the cost of climate change to the Canadian economy will be over $91 billion annually by 2050 without a federal carbon tax — currently $20 per tonne of industrial greenhouse gas emissions, rising to $50 per tonne in 2022.
The problem is this makes a false comparison between the cost of the carbon tax in Canada and the impact it will have on reducing the costs of human-induced climate change globally, known as a “total-versus-marginal error.”
“People often compare the wrong things when trying to decide if a policy is worth pursuing,” McKitrick said.
“If one person comments on the high cost of a proposed policy and someone retorts that it is a small amount compared to the costs of climate change, that is a fallacy because the two are not alternatives. We cannot trade off the marginal cost of a policy against the benefit of eliminating the total costs of all climate change because the policy will not achieve anything on that scale. The proper comparison is between the cost of the policy and the benefits attributable to only that policy.
“Claiming that Canadian climate policy would stop all climate change exaggerates its benefits. Since Canada represents about 2% of global carbon dioxide emissions, policies such as the recently implemented federal carbon tax will reduce total global emissions only by a fraction of 1%, which will have a very small effect on the global climate.”
The second common mistake political supporters of carbon taxes make, added McKitrick, is known as “the-social-versus private error” which considers carbon taxes in isolation from other taxation policies and ignores the ways in which these policies interact.
Both of these errors, he said, exaggerate the benefits of Canadian carbon taxation policies and make a false economic case for ever-increasing carbon taxes.
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