Meeting emission targets comes at a price
Governments being governments, many are tempted by the idea that difficult policy choices can be made with no negative impact on voters and consumers. Politicians whose careers depend on the often-fickle support of electorates are constantly in search of all-gain-no-pain policies, where touchy questions of tradeoffs are punted to some future unlucky elected official.
However, the present day is nothing more than yesterday’s future, and on many policy fronts, today’s governments are forced to pick up the can their predecessors kicked down the road. From healthcare to pensions to climate policies, governments are increasingly forced to face the reality that meaningful policy-making requires tradeoffs that will anger some, and impose tangible costs, as well as benefits.
A regulation or law that has no cost is likely to produce little benefit to the economy, environment, taxpayer, or whomever it is meant to please.
Similarly, for regulations to be effective and for benefits to be tangible, costs have to be imposed somewhere, monetary or otherwise. Effective policy- making demands that these costs be clear and transparent.
Unfortunately the exigencies of politics demand that the costs of policy choices be hidden from voters at all costs.
Climate policy is a perfect example of this conflict.
Most economists would agree that the simplest, clearest, most effective greenhouse gas emission reduction policy would be a carbon tax set at a level high enough to encourage conservation and reduced carbon usage across all sectors of the economy, from producers to consumers.
This would treat all industries and consumers the same in terms of our collective need to reduce our carbon footprint, and the cost to the consumer and industry would be relatively transparent: an increase in the price at the pump, for example, or in home heating costs, or input costs for a manufacturer, coupled with an incentive in the longer term to upgrade to a more efficient vehicle, home fuel source, or factory.
Enter politics, an arena in which the word “tax” may as well have four letters. In a world in which even Alberta-based energy industry leaders are calling for a “price on carbon” (read: carbon tax), elected officials won’t stomach the thought of pitching it to voters in most parts of Canada.
Instead, we’re left with vastly complex and inefficient programs aimed at doing the same thing a carbon tax would: cap and trade schemes; costly, heavy-handed and inefficient industry-by-industry carbon “targets,” and the like.
In the car industry, the costs are huge. While no one will debate the benefits associated with ever-higher fuel efficiency and lower harmful emissions from new vehicles, the costs will be in the billions. Worse, consumers — who eventually bear these costs buried in sticker prices — have no idea what the costs are.
Many of the gains we’ve seen in the past decade in terms of fuel economy would have happened without the imposition of ultra-ambitious fuel economy regulations due to the ever-present and increasing component of consumer demand. Today’s car buyer puts fuel efficiency at or near the top of the list of features required in a new vehicle.
Meanwhile, requirements for fleet-average efficiency targets dictated from Ottawa have carmakers investing billions in models that consumers aren’t buying.
In a world of $40 oil barrels and ever-more efficient new vehicles, consumers are flocking in the millions from the car segment to light trucks, compact SUVs and crossovers, rendering fuel economy regulations self-defeating to a certain degree.
Replace industry-specific emission targets with an economy-wide carbon tax at a meaningful level, and all of these issues disappear.
Alas, politics will not yet allow that to take place. Meanwhile, emissions keep on increasing every year, and governments continue to pursue costly and ill-designed industry-specific emissions reduction schemes. But we can’t forever have our cake and eat it too— regulations that bring benefits also impose costs.
Best to be upfront about it so that we know what those costs are and who is paying them.
