Projections of energy use in the 21st century. Notice the increased use of coal as energy demand grows.

Will a carbon tax work to reduce Canada’s emissions? Here are the views of some leading economists:

“If your objective is to cut greenhouse gas emissions, a carbon tax is definitely one of the most effective ways of doing that.”
Doug Porter, Deputy Chief Economist, BMO

“Two things are needed to stabilize greenhouse gas concentrations: you need a price on carbon, preferably through a carbon tax, to induce firms and individuals to cut back on their emissions; and you need an energy technology race.”
Chris Green, Professor of Economics, McGill University

Excerpts from TD Economics Special Report
Market-based solutions to protect the environment, March 7, 2007

http://www.td.com/economics/special/bc0307_env.pdf

“Environmental taxes (or user-pay principle), promote both economic efficiency and greater fairness, because they help ensure that polluters bear the cost of their actions, thereby eliminating the free-rider problem. In addition, setting the appropriate price structure to polluting allows other environmental objectives to be realized endogenously. For instance, if it’s much more expensive to engage in a polluting activity, individuals and firms will reduce that activity and search for alternatives.”

“Subsidies are a nudge in the night”

“Environmental taxes are best applied where the pollution is created and the revenues should not be a ‘revenue-grab’ by the government. Rather, the revenue should be used to lower other taxes in the economy or to finance subsidies that help the environment. This is known as ‘tax shifting’ and can provide additional positive impacts on the economy when environmental tax revenues help reduce existing taxes that currently create economic distortions including disincentives to working or investing. Like other environmental policies, user fees are not a silver bullet. Governments must find the fine balance between making the tax rate high enough to adequately address the underlying environmental concern, but not so high as to unduly compromise economic efficiency.”

“Although sensible environment 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. Tax-tilting to the polluter can endogenously achieve a number of environmental proposals with less financial costs to society.”

“Highlights”

• “There is no silver-bullet environmental policy, but polluter-pay policies can minimize the economic costs of environmental gains"
• “Changing the price structure of pollution helps change consumer behaviour towards emissions"
• “Regulations can be effective in bringing about desired environmental outcomes, but they also tend to be inefficient and burdensome"
• “Regulations are best used to complement market-based policies"
• “Some of the economic pain can be alleviated through tax shifting and encouragement of technological innovation and adoption"

Many of the world’s leading economics favour a carbon tax is the preferred policy for tackling greenhouse gases.

Here is a blog by Harvard economist Greg Mankiw who From 2003 to 2005, was the chairman of President Bush’s Council of Economic Advisors: http://gregmankiw.blogspot.com/2006/09/rogoff-joins-pigou-club.html