ECON371/UBCO2024WT1/NewsWiki/group8/Week 3
- Source
https://www.cbc.ca/news/climate/carbon-tax-controversy-1.7151551
- Problem
The local economic challenge discussed in this article is balancing the need to increase carbon savings. To promote reduced use of fossil fuels Concerned about inflation and cost of living Critics argue that the taxes are a burden on consumers. Supporters, on the other hand, believe that climate goals should be met.
- Summary
This article explores the controversial topic of the recent carbon tax increase and its role in Canada’s climate goals. Conservative leader Pierre Poilievre, along with seven premiers, has called for the increase to be scrapped, arguing that it will worsen inflation. The carbon tax, which initially started at $20 per tonne, has now risen to $80 per tonne after the latest increase. Despite the backlash, the government maintains that the carbon tax is crucial for Canada’s climate objectives. Although 90% of the revenue generated is returned to consumers, many Canadians have strong feelings about the tax. One key question Canadians have is whether the carbon tax actually reduces emissions. Research presented in this article suggests that while the carbon tax can contribute to emission reductions, it plays only a small part in helping Canada reach its climate goals. Researchers recommend that the government take additional actions, including cutting fossil fuel subsidies. Another common concern is whether the carbon tax increases inflation. Research indicates that such pricing does not significantly impact the rising cost of living in Canada.
- Economic concepts
- The Canadian government has estimated that all carbon pricing will account for up to one-third of Canada’s emissions reduction. Most of that one third will come from industrial pricing which is a far more effective than putting the pressure on middle to low-income families. However, this some debate that this price increase can result in Pollution Havens, where heavy manufacturing-based industries will leave Canada and find countries that have less environmental regulation. This is criticized because manufacturers costs are mostly made up of labour and material costs, environmental regulations have little effect on the cost to manufacturers. So, a carbon tax wont cause industries in Canada to flee, but will it effectively reduce emissions? Researchers found that a carbon pricing applied only to manufacturers will cut between 53 million and 90 million tonnes by 2030, while this pricing put on consumers will only cut between 10 and 22 million tonnes. If this figure is accurate, the government of Canada should take the pressure off consumers and place it on manufacturers.
- Price elasticity reflects the demand sensitivity to a good or service based on changes to its price, price elasticity can be elastic, inelastic, or unitary. Elastic demand means the demand for a good or service greatly fluctuates based on the price, decreasing when it becomes expensive and increasing when the prices drop. Elastic demand is represented by an absolute value greater than 1. An example of elastic demand could be candy as it is desired but not a necessity (luxury good). When prices are low, there is greater demand due to the “good deal”, however as prices rise, the demand will fall because this is not a good that is needed and therefore not worth the extra dollars. Inelastic demand means the demand for a good or service is minimally impacted by a change in price, for example, grocery demand cannot significantly decline with a rise in the price of groceries as everyone requires groceries (necessities). Inelastic demand has a value of less than 1. Unitary elasticity means the elasticity is equal to 1, the percentage change in price directly equals the percentage change in quantity demanded. Examples of unitary elasticity are much more specific, only pertaining to certain goods.
- Application of concepts
The discussion of this essay focuses on the carbon tax system on carbon emissions and the economic problem of climate change. It is a typical example of a Pigovian tax intended to address externalities on a society, which in this case are carbon emissions that have been identified to be a problem in climate change. This specific tax acts as a carbon cost and disincentives the use of carbon by providing both the demand and supply sides with a reason to go for cleaner options which lower emissions. One of the fundamental economic dilemmas today involves the trade-off between environmental goals and short-term economic pressures.When the carbon tax goes up Costs in industries that rely on fossil fuels are increasing. causing inflationary pressure Especially in the areas of energy and transportation, critics such as conservative leader Pierre Poilire Argue that it makes the cost of living crisis worse. This is especially true for low-income households that are disproportionately affected by the increase. Energy costs that low-income households have a greater financial burden than wealthier households. To solve this hassle The Canadian government has brought a rebate machine wherein ninety% of carbon tax sales is returned to families. This redistribution compensates for the financial effect on customers. And effectively neutralizes tax revenue. However, the effectiveness of this system is debated. Especially in light of its ability to reduce immediate financial stress for households amid rising inflation The economic rationale for a carbon tax depends on the price elasticity of demand for fossil fuels. When the rate of carbon rises Consumers and organizations might be anticipated to reduce intake and invest in energy-saving technology. However, call for for fossil fuels is surprisingly inelastic within the quick time period. This manner that small price will increase should now not considerably trade behavior. As time passes As taxes growth and alternative electricity assets emerge as more accessible. It is anticipated to cause in addition changes in energy consumption
- Conclusion
The Carbon tax increase in Canada acts as an example of the complexities and conflict between climate goals and economic pressures. Supporters of this tax argue that it is essential to reduce carbon emissions and critics raise concerns about inflation that may impact the cost of living, especially in low-income households. As for the carbon tax revenue, 90% is returned to consumers and research suggests that the tax increase does not significantly impact the rising cost of living. While the carbon tax is intended to address the negative externalities of fossil fuel use, its impact in reducing emissions is minimal and researchers urge for greater measures to be taken.
Prof's Comments
I find the connection between your concepts and the application to be weak or missing. While the question of Pollution Havens and the role that policies like a carbon tax have in driving companies to move may be weakly connected, there is no discussion of this in your application of concepts. Price elasticity is something that you do discuss briefly in your application. However, that does not appear till the end, and only briefly. That the demand for fuel, in the short run, is very inelastic is well established. Why is that relevant here? I see it as connecting to why people are upset about it. They see the increasing price of fuel, and also see few options to change their behaviour in the short run, and look for anything that they can see that they may have some control over. Most of the things driving the increase in price are not under the control of individuals, but maybe voting for a party that will scrap the tax at least gives some control.