Saturday, June 14, 2008

Market Acting As Carbon Tax

Everyday, we see more and more evidence that high fuel costs are already having the desired effect, accomplishing the basic argument of a carbon tax. A new polls suggests a seismic shift in our habit:
Millions of Canadian commuters are changing the way they get to work rather than paying the price at the pump, according to an Ipsos Reid poll conducted for Canwest News Service and Global National.

The poll, conducted this week as gas prices continue to rise, found that over the last six months 37 per cent of commuters were walking to work more and 31 per cent were switching to gas-efficient cars such as smaller vehicles.

The poll's results also indicate that 24 per cent of commuters were increasingly opting for carpooling, and 14 per cent were working more from home. Nine per cent of those polled said they took the drastic measure of moving closer to work.

The wild card is consumer demand, he said. "I think it's pretty clear evidence that there is a softening of North American demand for gasoline, as a result of the high price."

The poll also suggests that a number of Canadians are making plans to change their commuting habits in the future. A slim majority (52 per cent) of those polled said they plan on walking more in the future, while 49 per cent said they will switch to a more fuel-efficient car.

From everything I've read, it seems there really isn't any rational justification for oil trading at this price, it is entirely speculation. Supplies are up, demand is down, everyone is adjusting their forecasts downward, so one can assume, that after the summer season, prices will fall. If that holds true, then this change in routine might be a temporary shift, but then again even if gasoline were to retreat to a dollar a litre, it's still quite high.

I'll say it again, the Liberal carbon plan had better factor in the present circumstance and just leave it alone, or risk looking ridiculous. If the prices are artificial, and the bubble bursts, then, and only then, should a carbon tax kick in. The bottomline is reducing carbon emissions, if the market is currently achieving that in a substantial way, then any plan should factor in that reality.

10 comments:

Anonymous said...

This seems to be a perfect time to try to make permanent the public's changing attitudes and behaviour. Federal investments(e.g. infrastructure)could serve as a catalyst in providing incentives to provinces, cities and individuals to make permanent investments in conservation and energy efficiency.

catherine said...

High oil/gas prices are not the same as a carbon tax. This is explained on this blog. A carbon tax curbs production and puts money in the hands of the government to give back as income tax cuts and credits to help low-income Canadians and to encourage retrofits and development of renewable and clean energy sources.

wilson said...

The objectives you stated catherine, will all be achieved thru high 'market' prices on fuel.

Why give it back in income tax?

A portion of the government windfall of extra fed excise tax could be used to suppliment low/no income earners and r&d.
If you subsidize industry/people, it will slow down the 'urgency' to cut ghg's.

If you are suggesting Steve, that the government keep the fed excise tax at a level no less than say $100 barrel of oil would generate, so as to maintain subsidizing the low/no income & r&d, that would be sensible.
But that is not the carbon tax that Dion wants.
He & Lizzy wants a permanent, escallating tax.

Raphael Alexander said...

Yes, the market is working as a kind of carbon tax. But Stephane Dion's tax wouldn't change anything since a small increase in cost would be negligibly perceived by drivers. But the vast increase over the past two months has been very noticeable. If Dion wants to sink his ship with voters, he should pay close attention to what Gordon Campbell goes through in B.C. when they begin their tax in July.

catherine said...

How so, Wilson? The excise tax on gas is per litre and doesn't increase as the price increases. The increasing gas prices benefit the producers, not the government (except for GST).

ted said...

I understand that the carbon tax will keep the Federal excise tax on gasoline unchanged. Taxes on other fuels, like coal, will be increased to reflect their carbon content. While drivers might not care (in the short run) about a few cents per litre in the price of gasoline, you can bet that the users of coal (mostly industrial users) will be looking very carefully at their financial statements and thinking, "Okay, we get some money back from an income tax break, how much can we keep by reducing our usage of coal?" Businesses look very carefully at their marginal costs and marginal revenue.
One more thing: one of the important effects of a tax on coal will be to stimulate research into using biomass for fuel, because the carbon tax will make biomass more attractive. Just last week a Canadian company called Performance Plants announced a collaboration with LaFarge, the cement maker which has a plant in Bath, Ontario, to do research on growing plants for use a biofuel to replace the coal that is currently burned to make cement. They can see the future. They can see that coal will be much more expensive to burn in the future, and rightly so.

Steve V said...

"High oil/gas prices are not the same as a carbon tax."

I understand that.

Koby said...

"From everything I've read, it seems there really isn't any rational justification for oil trading at this price, it is entirely speculation."

There seems to be alot of speculation over the last month, but before that no. Where there is rapid speculation there is high inventories. As Paul Krugman pointed out these are absent.

I see you endorsed Dan Gardner's idea of a "carbon basement".

Steve V said...

koby

Then why is it that, even oil execs admit, oil should be around $65-70 right now? Aren't they basing that on supply and demand?

Saudi Arabia is set to increase their output, to record levels. This despite earlier assertions this week that the world oil supply was fine. The reason isn't supply, but a sense that these prices might hurt the oil industry in the longterm:

"While they are reaping record profits, the Saudis are concerned that today’s record prices might eventually damp economic growth and lead to lower oil demand, as is already happening in the United States and other developed countries. The current prices are also making alternative fuels more viable, threatening the long-term prospects of the oil-based economy."

Do you have a link for Gardner's proposal?

mitch said...

Steve V,

well said.