King Arthur Movie Tristan

Last week the T-D bank released an economic report called Market Based Solutions to Protect the Economy. The Financial Post reported on it last at the time, and erroneously concluded that T-D was in favour of a carbon tax. Here’s portion of the conclusion:

Although sensible environmental policy regimes will require elements of almost everything we’ve discussed, those that change the price structure of pollution to the users are most effective in changing consumer behaviour towards emissions

Note the point that policy “will require elements of almost everything we’ve discussed.” That covers a fair bit of ground, including command and control (i.e. targets), moral suasion (advertising, don’t litter campaigns, the million ton challenge), taxes, subsidies and cap and trade. Canada is currently involved in each element to a degree, and the question remains which is the most effective down the road.

T-D does, in fact conclude that the most efficient method is through tax policy. They do note however, that:

Cap-and-trade systems are not easy to implement, but once up-and-running they have proven benefits. The fundamental appeal of a cap-and-trade system is that it aligns the incentives of firms with the objective of reducing GHG emissions.

The T-D banks report does saying “’tax-tilting’ to the polluter can endogenously achieve a number of environmental proposals with less financial costs to society.” However, it does ultimately conclude that

…governments should take a holistic approach, coordinating policy approaches to capitalize on the relevant strengths of each.

It needs to be said, both here and anytime this issue comes up, that any form of carbon-tax must be revenue neutral. This is what this report means when it refers to tax-shifting, shifting the tax burden from income, as an example, to carbon use. This report at no time advocates a straight up carbon-tax. It does suggest that if pollution reduction is your goal, tax-shifting and carbon market are the best solutions.