Friday, July 11, 2014

A carbon tax is never going to work for the same reason no carbon tax is never going to work

Perhaps one of the greatest (and most annoying) red-herring debates of our time is the "carbon tax vs. no carbon tax" debate which always revolves around "economic growth" and is therefore always flawed on both sides of the debate. It's not that the answers given are wrong per say but more so that the question being asked isn't really relevant and so any subsequent answers will likewise be just as irrelevant. I've decided to give my take on the "carbon tax" debate now as I've touched on it previously but haven't ever really gone in depth and with Justin Trudeau's carbon tax announcement I feel now is probably a good time.

Market fundamentals are broken

My biggest issue with concepts such as a carbon tax is that for them to work market fundamentals must be allowed to play out in good or bad ways and as we've shown plenty of times over recent and long term history that is not what happens.

So if we look at the sub-prime crisis of 2008 as an example did society allow the banks to collapse or did we bail them out and start printing currency hand over fist ever since to keep interest rates low and "support the economy"? So let me ask you, what do you think will happen if say an oil company is deemed "too big to fail" (as they would very likely be considered, especially here in Canada) and a carbon levy is interfering with their growth?

Alberta extends deadline to renew carbon levy
The Alberta government came under fire from critics Wednesday after it quietly extended the deadline to renew its carbon levy on the province’s heaviest greenhouse gas emitters.
The move comes one day after auditor general Merwan Saher released a report slamming the government’s handling of its climate change strategy, a central component of which is the $15-per-tonne carbon levy.

The specified gas emitters regulation had been up for renewal Sept 1, but an order by Environment Minister Robin Campbell during a cabinet meeting this week extended the deadline to Dec. 31, 2014.

Premier Dave Hancock said the extension buys the province time to continue discussions on a North American climate change strategy.

“It’s very difficult for Alberta to do anything more than we’re doing now, with respect to raising the costs for industry, without it being a continental approach,” Hancock said in an interview from Iqaluit, Nunavut, where he is attending the Western Premiers Conference.

Hancock said the province has heard concerns from industry about the impact the levy has on investment and cost margins, adding he is waiting to see whether the results of the November U.S. mid-term elections lead to a shift in policy from Washington.

The regulation places a levy on 12 per cent of a company’s emissions. The price on carbon is a central component of the province’s climate change strategy, which aimed to reduce greenhouse gas emissions by 50 megatonnes per year by 2020. The government admitted in 2012 it is on track to miss those targets by a considerable margin, and Saher’s report castigated the government for failing to monitor and report on the strategy’s results.
I'll tell you what we will do, we will manipulate the system and the rules to get what we want, namely economic growth and as we've been discussing over the last few years on this blog Alberta's expensive oilsands industry really has no additional margins to give and despite historically stable and high oil prices continues to hit problems.

Sunshine Oilsands Ltd facing cash crunch as Asian investors appear spooked by poor returns

Cracks in rock could be connected to Cold Lake bitumen leaks, CNRL acknowledges

Sunshine Oilsands said to withdraw US$325M high-yield bond

Sunshine Oilsands founder resigns from board

Oil sands as national economic engine? Survey shows Canadians vastly overestimate sector’s impact

Nexen letting staff go, slashing costs despite CNOOC’s pledges to Ottawa to win takeover approval: sources

Canada energy deals rebound as shale plays trump oil sands in investors’ eyes

Poor returns, slashing costs, job losses. Yea, sure, there is plenty of momentum behind them and Alberta is "leading the way" in job creation (which is obviously a clear indicator of a healthy national economy, right?) but that is going to teeter off too as the operating costs continue to increase. People I know within the industry tell me all of the companies are already starting to get pretty stingy. It's only going to get worse and more apparent as the temporary rise in oil prices thanks to global tensions adds additional strain to the input costs over time. Of course, that event is too far in to the future for greedy Canadians resulting in the production of articles like this.
EDMONTON - It’s a painful truth: bad news is often good news for the oilpatch.

Witness the run-up in oil prices and oil stocks since the jihadists of the newly formed Islamic State invaded Iraq, raising fears that the country might plunge back into civil war.

Since the violent al-Qaida breakaway group — previously known as the Islamic State in Iraq and the Levant (ISIS) — took control of Mosul, Iraq’s second-largest city, oil stocks have resumed their upward trend.

Toronto’s main energy index, which looked ready to roll over in late May after a big run earlier this year, has jumped about five per cent since early June, when Mosul’s outgunned government forces were crushed.

The latest surge in energy stocks also helped propel Toronto’s benchmark equity index to an all-time record high.

Shares of some big Alberta producers — such as Suncor, Canadian Natural Resources and Cenovus — have done even better than the oil and gas index, gaining about 10 per cent apiece in recent weeks.

Surging oil prices have driven the gains, touching a recent peak of nearly $107 US a barrel, up from $99 in early May. Although crude has since backed off to about $104 a barrel, analysts see limited downside ahead.

In fact, with the jihadists in control of a vast border area between Syria and Iraq, the government of Iraqi Prime Minister Nouri al-Maliki teetering, and hopes for future output growth from OPEC’s second-biggest oil producer fading fast, analysts are boosting their oil price forecasts for the rest of this year and next.

The so-called “fear premium” is back. So while oil prices are unlikely to spike further unless the insurgents threaten Iraq’s rich oilfields in the south, the floor price is likely to stay elevated for the foreseeable future.
What does it say about your economic state when global instability is practically a required part of the formula? Meanwhile for those not playing a direct part in the oil industry increased energy costs simply translate to a deteriorating standard of living.
If you are a temporary foreign worker in Fort McMurray, the gap between your wage and the wage that workers earn in the oilsands sector is immense.

On average a worker in a fast food outlet in Fort McMurray — and there are lots of them in a place where at almost any time of day there is a long line of pick-up trucks waiting at the drive-thru — earns $14 to $17 an hour. If it’s part-time work, which it usually is, that works out to $400 to $500 week at the most.

In the oil and gas sector in Alberta where wages are mostly driven by the fierce competition for all kinds of labour in the oilsands industry, the average weekly wage as of December 2013 was $2,067, up 73 per cent from 2001.

Construction workers in Alberta earn an average weekly wage of $1,586 — an increase of 83 per cent since 2001.

This is just the average on a province-wide basis. In the oilsands region where competition for labour in both oilsands operations and construction is fierce, the weekly wages are much higher.

So where does that leave the temporary foreign worker or anyone who wants to work in a fast food outlet or a hotel?

Mostly it leaves them at the bottom of the heap when it comes to wages with not much hope of ever moving beyond that. The guest workers keep wages down for themselves and anyone else who takes those jobs.

Where does it leave the small business owner who can’t really compete with the astronomical wages offered by the oilsands industry?

The Chamber of Commerce in Fort McMurray says even with
the recent change to the TFW program small businesses are left in a tough spot and the federal government should make special allowances for them.

“Here in Alberta and Fort McMurray, we still have enormous difficulty attracting quality people under the current laws,” Nick Sanders, president of the Fort McMurray CoC
told Fort McMurray Today. “For our region, the cap is not appropriate. In fact, we believe it will just hurt our local businesses.”

“And if you look at the predicted job growth numbers, not only in small businesses, but for the oilsands, it’s going to get worse,” Sanders added.
This should of course be no surprise to readers of this blog, but its nice that the mainstream media is finally pointing out that there is a direct connection especially when you have memos warning of "increasing labour costs".

Food bank expanding in Parkland County <- Albertan Growth?

so what does all of this have to do with a carbon tax? I think it should be obvious, as it stands now with the miniscul levy already in place and existing operational costs which are destined to simply increase and an oil price that has reached the upper limits of high cost stability that there just isn't room for a carbon tax and even if we did implement one should it inhibit "economic growth" it would simply be adjusted, delayed, or cancelled.

Or maybe we'll just print the currency to cover it

The entire world right now is supporting their "economies" by printing currency and manipulating economic data to fit the desired interest rate policies. For anyone living in the real world the idea that "inflation is low" is laughable, but the low inflation (free from "distortions" like the cost of food or energy) is required to continue providing the "low interest rate" excuse central banks need to continue carrying out their policies to foster more and more loans to prevent "deflation" (See: The magic of minimum wage and inflation hocus pocus). So if a carbon tax were passed what do you think the odds are that data will simply be manipulated more to the point that central bank monetary policy can simply create the needed currency to cover the additional cost? If governments intentionally inflate away their debt why wouldn't they inflate away the cost of carbon too?

The idea that printed currency with no relation to the real world can be used as a hard limit on real world pollution is probably the stupidest thing I've ever heard of. The day the U.S. stops raising the debt ceiling is the day that I'll believe printed currency can limit anything.

But it's not like no carbon tax is going to save the "economy" either

As it stands right now even with no international or even nation carbon levy Canada's economy is struggling. "Growth" just isn't happening despite all of the continued emergency measures and low interest rates. Sure, we're propping up asset bubbles for the obnoxiously rich but otherwise things are pretty well at a standstill. The lower Canadian dollar (relative to the USD) hasn't resulted in the boom of exports economists have been "predicting" largely because they're basing it on historical models which are no longer accurate.

Awhile ago the World Bank put out a report that said that "addressing climate change would increase economic growth" and I noticed a lot of people rejoicing and linking it without reading it too closely apparently.
In the World Bank report, economists looked at the effects of specific policies in six regions – Brazil, China, the European Union, India, Mexico, and the United States – that are both leaders in the world economy and global emissions.

None of the policies involved putting an economy-wide price on carbon emissions. Instead, the bank used computer modelling to gauge the effects of specific measures – such as installing dedicated bus lanes in India or clean cook stoves in China, or introducing more efficient air conditioning and other building systems in Mexico.
The annual benefits of those policies included GDP growth of between $1.8tn and $2.6tn – which was an estimated 1.5% higher than under a business as usual scenario, the bank said.

It said the pro-climate pro-climate policies would have other knock-on benefits including avoiding 94,000 deaths a year due to air pollution.
Dedicated bus lanes, clean cook stoves, and "more efficient air conditioners". Yup, seriously. Nevermind the resource extraction that will have to occur to build new "more efficient air conditioners" for Mexico, or the tar and roadwork that will go into "dedicated bus lanes". and clean cook stoves in China? Wow, that should surely offset their industrial pollution. These measures will definitely "grow the world economy" because we will be producing more stuff to replace the current stuff so it will "grow the economy" for the same reason that "planned obsolescence" grows the economy but in the process we will have to extract and deploy numerous resources and consume plenty of carbon for the output. It should be no surprise that the World Bank put out this report as surprising as it might be to most people because what are they advocating, really? Buying more stuff which will likely require government or personal loans for the initiatives. Hmm.

The peoples economy is suffering from our pursuit of oil

The idea a carbon tax (or no carbon tax) will enhance the people's economy and not the oligarch's economy is already a big fat lie. Our politicians are paying lip service to economic growth and climate policy but the tragedy of Lac-Megantic and the resulting losses show that universal "economic growth" and the people's economy isn't really the focus.
Most of those who died in the blast were at the Musi-Cafe, a popular waterfront bar. Its owner, Yannick Gagne, who was at home that night, is among the business owners trying to rebuild.

Gagne says he can imagine bands playing to crowds on the waterfront deck of his rebuilt bar, but he is not sure when it will happen. Like many businesspeople, he has a spot to rebuild but is waiting for the provincial government to calculate the amount of assistance he will receive.

"In the best case it will be September, but it could be later," he said, standing amid wood and metal frames in a zone set up by the government for dislodged businesses. "The problem is we don't know how much assistance we are getting from the government, and that is slowing us down. We've been waiting for an answer for months."

Quebec's Ministry of Municipal Affairs said some $4.3 million has been disbursed among 147 businesses that sought aid in the wake of the derailment. An additional 97 requests are still unresolved. A spokeswoman declined to comment on their progress.

That aid is part of more than $200 million that has been doled out by the governments of Quebec and Canada. Most of that has gone toward the cleanup, rebuilding infrastructure and support to municipal and non-governmental bodies.


The one tangible sign of recovery - the return of freight trains last December - is also one of the town's biggest worries. The train is a constant reminder of the tragedy.

"I hear it 15 minutes before it arrives. I see it, I watch it go by my window," said Helene Metivier, 50, who owns an inn just outside the blast zone. "It is hard. I live with this memory and fear."
The one tangible sign of recovery? More trains. Meanwhile new crude oil related derailments seem to happen every month. Nationally Canada is all about economic growth for a small portion of the population while everyone else suffers and pays for the consequences.

We need to unite the people

I was reading a blog post the other day on Politics Respun (though it was a repost from another source) about how the 1% has more solidarity than the rest of us. It's easy to see why they do using the carbon tax as an example. Populations are deeply divided on a carbon tax, will there be jobs or won't there be? But for the 1% carbon tax or no carbon tax: they win and you lose. When you realize most issues put in front of the public are intentionally decisive everything else starts making more sense. You'll start to see that partisan lines don't really exist at all. The end result no matter what choice the people believe they've made will be the same. It's like your parents telling you can do your homework before or after supper. Sure you have a choice but ultimately the parents still set the agenda.

The uniting issue for everyone across all political spectrums should be that our monetary system itself is broken, and needs to be fixed. That it doesn't accurately reflect the reality we find ourselves in. Some people will actually suggest alternatives such as steady state economics but I personally believe that it needs to be a collective decision and discussion. We can't really begin discussing the solution until we start discussing the problems. The real problems, and the current system with it's short term popularity contest we call voting where democracy has been reduced to a representatives' "yay" or "nay" along party lines on lobbied corporate bills they've never even read, can not address our long term structural issues. Nobody wants to spill the beans.

The banking Ponzi-scheme is the issue I believe that can unite left and right. It's why I believe that I have followers and readers from across the political spectrum. Left and right represent different management styles of the existing system but what we really need is to revamp and restructure the entire thing. We need to re-orient the economy so that it meets the needs of the people and isn't predicated on infinite growth. We need to restructure the political system away from parties, not more towards them, proportional representation is the last thing we need. We need individuals, real people, analyzing and discussing these problems not what has essentially become a new form of royal inheritance with multiple people from the same families taking important political roles in countries with millions of people.

We need nothing short of a revolution, not of violence, but of the mind where we finally realize that no matter what order the deck chairs are in we're still on the Titanic.

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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for CenturyLink

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

1 comment:

  1. Thanks for the interesting post. I agree, and have always thought that the idea of a carbon tax is nonsensical. Why would we expect the market to fix a problem that the market created in the first place? But at a more basic level it make no sense because if, as the Green Party claim, you shift the tax burden to carbon usage one assumes that one is attempting to reduce carbon usage, in which case if your tax shift is successful the subsequent reduction in usage will reduce government revenue substantially and your tax shift will have failed to do what taxes are supposed to do - create government revenue. Thus a successful carbon tax would be unsuccessful and you would have to shift tax back to income.