Saturday, October 8, 2016

Why a Carbon Tax is good for the Yukon’s economy

I’ve been really confused by the Yukon Party’s opposition to the carbon tax.  It seems they don’t understand the Yukon’s economy.  It needs to be said that in fact a carbon tax will be GOOD for the Yukon’s economy.  This is for two reasons:

1. The productive part of the Yukon’s economy actually has a very low carbon intensity.  We have a highly educated workforce and most of our economy is not resource intensive.  Mining, oil & gas are only about 13% of Yukon’s GDP (see Yukon Bureau of Statistics’ Gross Domestic Product (GDP) by Industry 2014).  Because mining produces a product (metal), that actually overstates the value of the resource industry when it comes to jobs and salaries paid.  Therefore the bulk of our economy is low-carbon intensity.  With a carbon tax, the Yukon’s economy is more competitive relative to carbon-intense economies.  In other words, the Yukon will perform better relative to other provinces when carbon taxes come into play.  This is a basic of economics:  do what you are good at and the Yukon is good at having a low-carbon intensity economy.

The Yukon also has excellent opportunity to further de-carbonize our economy by increasingly switching to renewable energy (primarily hydropower, but also biomass and to a lesser extent wind and solar).  Other jurisdictions do no have the natural resources to produce renewable energy that the Yukon does.  As such, the Yukon can readily further reduce its exposure to carbon taxes and become even more competitive.  

2.       Use of fossil fuels represents a significant economic leakage for the Yukon.  In 2013 the Yukon consumed about 226 million litres of gas, diesel (inc. heating fuel and jet fuel) and propane (see Yukon Greenhouse Gas Emissions: the Transportation Sector, 2015).  If we assume this is about $1/L, that is $226,000,000 that left the Yukon with just about no economic benefit to the Yukon (we essentially burned that money).  Any reduction in fuel usage will result in more money staying in the Yukon’s economy and can be put to more production use.  For example, the money could be used by Yukoners for arts, entertainment, culture, health care, education or just about anything will be more useful that burning the money.  This will also help build the local economy since more resources will be used and consumed locally.  Even a 10% reduction in fuel usage will be $22 million dollars that would be repatriated to the Yukon’s economy.  That is almost exactly at 1% increase in our GDP which would have wiped out the GPD decline the Yukon experienced in 2013 and 2014.  

Another thing that makes me mad is the rhetoric does not reflect the realities of math.  The carbon tax will have almost no measurable impact on the price of goods (and zero impact of the cost of services) because the amount of fuel used to transport goods to the Yukon is very very small relative to the value of the goods.  Where you will see the difference is at the gas pump and on heating fuel.  But it is not much of a difference:  the $10/tonne tax will be about $0.02 /L at the pump.  Yup, that is it: less than the price difference between gas stations and less than the difference between regular and premium.  If you drive the speed limit and drive conservatively, you will increase your fuel economy by 10% which more than offsets the fuel price increase of 1.7%.  Any driver can fully mitigate the any fuel price increase. 


Mike said...

Thanks Forest. The last two lines are the most important to me. The carbon tax is an incentive to reduce fuel consumption. Driving the speed limit, driving less or owning a more efficient vehicle will reduce the effect of the tax. Walk to work or take the bus just one day a week and save 20% on fuel.

Forest Pearson said...

Thanks for the thoughts Mike. This speaks to a larger picture issue: what we choose to do as part of our "lifestyle". If you enjoy driving a jacked-up pickup "rolling coal" up Two-Mile Hill, then okay, but you should pay for that choice. Or if you choose not to participate it burning up our home (aka Earth), then perhaps you should benefit for the hardships you decided to take for the future of our children. Oh, and as a side impact, you may actually experience an improved quality of life for your efforts.

Ewan said...

How do you think a higher gas price will affect the tourism industry which supports a large private sector economy? It seems to me that when the gas prices go up, tourism drops. Do you want to see a shift on how people travel to the Yukon as well?

I like the idea of "slow travel," but the transition will be painful.

FL said...

Here is some factual information to combat some of the wrong information being spread around the Yukon right now.

What is carbon pricing? = There are two main types of carbon pricing: emissions trading systems (ETS) another name for this is cap and trade and a carbon tax. A tax sets a price on carbon by defining a tax rate on greenhouse gas emissions or – more commonly – on the carbon content of fossil fuels.

What does cap and trade mean really in practical terms? = It’s a system where the government caps the total amount of carbon emissions allowed. The government then issues permits to companies, specifying exactly how much carbon that company can burn. If a company wants to burn more than its share of carbon, it must buy extra permits from other companies that have burned less.

What is a carbon tax? = a tax on fossil fuels, especially those used by motor vehicles, intended to reduce the emission of carbon dioxide.

A carbon tax does or does not work. We can find arguments on both sides. However until somebody comes up with something else through cap and trade or something else, then it is the only other tool we have to try and curb carbon dioxide emissions.

Conservation is better than a tax on carbon= true it is very much better than a tax. The Yukon government may indeed be able to aggressively promote conservation in fact and make this part our Yukon contribution under cap and trade system and thus avoid a carbon tax down the line in 2018. BUT until we are sitting down with stakeholders and the Federal Government and discussing how to make this work, then it is all a pointless case of finger wagging, leading up to a Yukon election.

Our elected MLA’s unanimously agreed in 2009, to the following motion in the Yukon Legislature.

“Motion No. 890 Clerk: Motion No. 890, standing in the name of the Hon. Ms. Taylor. Speaker: It is moved by the Minister of Environment THAT it is the opinion of this House that:

(1) climate change is one of the greatest challenges facing the world today,

(2) in Yukon and across the circumpolar north the effects of climate change are occurring at a rapid rate and are impacting forests, wildlife, transportation corridors, infrastructure, water, food security and traditional ways of life, and

(3) addressing climate change requires collaboration and action at all levels of government; THAT this House recognizes the role of subnational governments’ experience and expertise in informing and supporting national governments in achieving a global climate agreement at the upcoming Conference of the Parties to the United Nations Framework Convention on Climate Change in Copenhagen, December 2009; and

THAT this House urges the Government of Canada and all national governments to make every effort to reach an international agreement on climate change.”

The provinces and territories will have flexibility in deciding how they implement carbon pricing: they can put a direct price on carbon pollution or they can adopt a cap-and-trade system.

The Government of Canada will provide a pricing system for provinces and territories that do not adopt one of the two systems by 2018.
Revenues from carbon pricing will remain with provinces and territories of origin.
Provinces and territories will use the revenues from this system as they see fit, whether it is to give it back to consumers, to support their workers and their families, to help vulnerable groups and communities in the North, or to support businesses that innovate and create good jobs for the future.

The Government will work with the territories to address their specific challenges.

Forest Pearson said...


ultimately, we do need to change the way our society works; there is no way around that. And that change will be painful, but the longer we wait, the more human suffering, misery, and damage will be done. So it is time to start now.

FL said...

Forest this is the web link to Yukon Hansard Nov. 23, 2009

see page 6 bottom right of the pdf file