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The Kyoto Dividends Plan
13/08/2003

The federal government is launching their billion-dollar plan to cut down Canadian greenhouse-gas emissions as we try to meet our obligations under Kyoto. Unfortunately, many critics are saying that this expense might not be effective or efficient.

I've written about this before, "a long time ago" in one of my first posts on this site.

I can suggest a plan I think would work better, and it is very simple:

We should set up a tax on greenhouse-gas-producing products, collect the tax for the year, and then distribute 100% of it back to citizens. The tax should be implemented slowly, so that we can track the impact on emissions. The idea is to gradually adjust the tax level to hit our emissions target. The market mechanism does the work for us: the higher the carbon tax rate, the more GHGs will be discouraged.

The issue of new taxes is very politically-sensitive. That’s why this charge should not only be revenue-neutral, but provably so. A claim made by the government that “we’re collecting carbon tax and reducing your income taxes by the same amount” is not usually credible. Instead, the money should never become revenue for the government. It just goes into a fund before being redistributed. I’d even go so far as to have the administration costs paid out of general revenues so that the carbon tax can be completely refunded, right down to the last penny.

How should the money be refunded? The most sensible thing I can think of is to divide it equally among SIN-holding citizen-residents. Every participating adult gets a dividend cheque at regular intervals.

A question may arise about corporations. They will be paying carbon taxes as they produce things in this country, but not get any of the refund. I think this is fair. The idea is to charge for the production of pollution but to put the money back into the economy by returning it to Canadians. If no money is refunded to corporations, they will have to charge higher prices for GHG-intensive products. This is actually good -- it is the pricing mechanism in action. If Canadians really need those products, they will have “cash back” to help offset the higher prices. On the other hand, they can also opt for more environmentally-friendly choices that will now be more competitive.

I believe this approach would be effective and efficient. In fact, once tried it could become a model for dealing with other types of pollution as well. This approach would also be relatively inexpensive. Instead of taking a billion dollars out of the economy, with little by way of results, this approach will only cost us the administration. We get a lot more effect for much less cost. Unfortunately, we also disturb a lot of powerful interests. This plan may just be too effective for its own good.


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