Costing Out The Carbon Tax Plans - Do The Numbers Add Up?

Last week in Liberal Party of Canada - Carbon Tax Plan and Green Party of Canada - Carbon Tax Plan I reviewed the carbon tax plans issued by two parties. However, I made no real attempt at determining whether or not the revenue projections in the plans were plausible. I will do so now.

Now what types of emissions a "carbon tax" covers is, unfortunately, not well defined in either plan. So we will need to look at a variety of cases. We will focus on three major types of greenhouse gas emissions:

• Carbon Dioxide - 618 million tonnes released (2005)



• Methane - 5.2 million tonnes released (2005). Methane is 21 times more potent per tonne than carbon dioxide in global warming.



• Nitrous Oxide - 140 thousands tonnes released (2005). Nitrous oxide is 310 more potent per tonne than carbon dioxide.

(Figures from the 2005 Greenhouse Gas Inventory Report - PDF)

To take into account the differences in potency, greenhouse gas emissions can be measured in carbon dioxide equivalents. Canada's 2005 emissions can be described in the following ways:

• 772 million tonnes of carbon dioxide, methane and nitrous oxide, when measured in carbon dioxide equivalents.



• 623 million tonnes of carbon dioxide, methane and nitrous oxide, when measured simply but number of tonnes of emissions.



• 618 million tonnes of just carbon dioxide.



• 168 million tonnes of carbon, since one tonne of carbon equals 3.67 tonnes of carbon dioxide.

Those are the four potential emission levels we need to consider (772 million, 623 million, 618 million and 168 million).

The Liberal Party of Canada Plan

The details of the Liberal Party plan can be found in their Green Shift Book (PDF). The highlights as follows:

"The price will begin immediately at $10 per tonne of greenhouse gas emissions and steadily rise by an additional $10 per tonne each year, reaching $40 per tonne within four years. Since the existing excise tax on gas at the pump is already at the equivalent of $42 per tonne of carbon, the tax at the pump will not rise. Likewise, because there is already a tax on diesel and aviation fuel of four cents per litre, the tax of these fuels will see no increase in the first year."

(Page 6) We have a $40 per tonne tax on "greenhouse gas emissions", though it is not clear what is meant by this - does it measure carbon dioxide equivalents, raw tonnes of emissions, or just carbon dioxide emissions? These would replace existing excise taxes on fossil fuels which bring in roughly $5 billion to the Federal treasury. The statement about $42 per tonne of carbon is in error - the existing excise tax on gasoline is equivalent to $42 per tonne of <i>carbon dioxide</i>. The plan makes the mistake of using them interchangeably, so I will assume what is meant is carbon dioxide.

The plan states that "there will be total revenue of just over $15 billion within the Green Shift" (Page 26). However for the numbers to add up, what must be meant here is that there will be just over $15 billion in <i>additional</i> revenue. That is $15 billion above and beyond the roughly $5 billion collected in excise taxes. Thus the plan will collect roughly $20 billion.

The plan also assumes that it "will cover approximately 75 per cent of domestic emissions." (Page 22). All we need now is an estimate of how much greenhouse gas emissions will be reduced under the plan. Unfortunately, the plan does not tell you! For simplicity, I will assume that the plan will not cut emissions at all, it will simply stop them from growing. With these figures, we can make a rough estimate of how much revenue would be collected in the 4th year (and beyond of the plan):

• 772 million tonnes of carbon dioxide equivalents * $40 per tonne * 75 percent collection rate = $23.1 billion.



• 623 million tonnes of emissions * $40 per tonne * 75 percent collection rate = $18.7 billion.



• 618 million tonnes of just carbon dioxide * $40 per tonne * 75 percent collection rate = $18.5 billion.

Given that it is not well-defined what exactly is being taxed, a $20 billion in revenue from the plan does not seem unreasonable.

The Green Party of Canada Plan

The Green Party plan never actually tells the reader how much the tax would be or how much it would collect! The only real indication of what they have in mind comes from a press release which states:

By taxing carbon at the rate of $50 per tonne, the Green Party will raise $40 billion for the federal treasury.

Can they possibly mean taxing carbon (rather than carbon dioxide). It is not at all clear. As well, no indication of what percentage of emissions would be covered under the plan. I will assume a 75% collection rate (in line with the Liberal plan) and once again assume emissions will be left unchanged. Here are the results:

• 772 million tonnes of carbon dioxide equivalents * $50 per tonne * 75 percent collection rate = $28.9 billion.



• 623 million tonnes of emissions * $50 per tonne * 75 percent collection rate = $23.4 billion.



• 618 million tonnes of just carbon dioxide * $50 per tonne * 75 percent collection rate = $23.2 billion.



• 168 million tonnes of carbon * $50 per tonne * 75 percent collection rate = $6.3 billion.

If you take the Green Party plan literally, their revenue projections are off by a factor of 8. But under any of the scenarios you never get anywhere near $40 billion.

Conclusion

The Liberal Party numbers seem plausible but we cannot know for sure since they never define what they are taxing and make no projection about emissions. The Green Party numbers, on the other hand, seem to make little sense at all.