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ANDREW COYNE Mon Jun 16, 12:00 AM

What's this

British political culture does not regard new ideas with such bovine hostility as does ours

Assuming he is not done in by his party beforehand, and assuming no loss of nerve on his part or theirs, at some point in the next few weeks Stéphane Dion will favour us with a fuller explanation of his proposal for "putting a price on carbon" — or as his critics prefer, a carbon tax. Which is the Liberal leader's problem in a nutshell: by the time he gets around to telling us what his actual plan is, the public will have been subjected to weeks of attacks on a plan that may or may not bear any resemblance to it.

If nothing else, he needs to get a move on. It was probably a mistake to give out the broad outlines of the plan in advance of the details — it is hard to accuse the Conservatives of misrepresenting it so long as no one knows for sure what's in it — but having done so, he will need to devote some time to correcting these misimpressions. He will have some work to do, for example, just to make it clear that he is not simply imposing a new tax, but rather altering the tax mix, giving back any revenues raised in the form of personal and corporate income-tax cuts. So, too, he will need to repeat over and over that he is not increasing the tax on gasoline at the pump, but rather spreading the existing fuel tax to cover other sources of carbon emissions.

It might have been better, indeed, to have talked up the income tax cuts first — to present the plan as an income tax cut, financed by an environmental levy, rather than as a "revenue neutral" carbon tax. Some such shift in emphasis is still possible, simply by front-loading the income tax cuts — that is, by making the package "revenue negative" in the early years. It is sensible policy to start with a very low rate of carbon tax, giving consumers and industry time to adjust to the much higher rates they will know are coming in the long run. At the same time, there is probably more room in the budget than the Tories are letting on to cut income taxes.

He will also have to address some of the more legitimate criticisms of the plan. While the point of the tax is to alter behaviour, there is nothing wrong with lessening the impact on the very poor by means of some offsetting tax credit. Likewise, while the regional implications are probably overstated — do people in the East not burn oil and gas? do people in the West not earn income? — there is room for some recycling of revenues to head off accusations of "another National Energy Program." In any event, if we are agreed that global warming is a problem, and that Canada is obliged to do its part — as every party does agree — then doing nothing is not an option. Nor are half measures, such as all the parties have proposed until now: forcing only heavy industry to pay for its emissions, for example, as envisaged under federal and provincial cap-and-trade schemes.

Cap-and-trade has its advantages, and should be part of the mix. A carbon tax requires governments to more or less guess at the rate needed to achieve the desired reduction in emissions; cap-and-trade, by contrast, dials in the emissions cut first, and leaves the market to figure out the price. But if a carbon tax offers policy-makers less certainty over the environmental impact, it gives them more certainty over the economic impact, for the same reason — since the price of emissions is fixed. Moreover, a carbon tax presents fewer of the design and implementation problems that have plagued early experiments in emissions markets, especially in the short run. And it gets at a broader range of emissions sources than cap-and-trade schemes, with their focus on a few large emitters, typically do.

(Or maybe not. A committee of the British House of Commons has just recommended an equivalent scheme for individuals, known as "personal carbon trading." Everyone would be given an equal per capita carbon allowance, which they would draw down when purchasing things like gas and electricity; unused credits could be bought and sold on the open market. But that's Britain, where the political culture does not regard new ideas with such bovine hostility as does ours.)

But wait a minute. Why are we even talking about any of this? Hasn't the world price of oil doubled in the last three years? Doesn't the price of other fossil fuels move pretty much in lockstep? Isn't that more than enough to achieve, on its own, the desired reduction in emissions? What do we need a carbon tax for?

Not so fast. As the influential environmental economist Mark Jaccard never tires of pointing out, there is no straight-line correlation between consumption and emissions. Just as reducing carbon emissions does not require us to give up on fossil fuels, provided we can harness technologies like carbon capture and storage, so the reverse is also true: today's higher prices, though they lead us to cut our consumption of energy, may not result in equivalent reductions in carbon emissions, if they also lead us to make greater use of "dirtier" (and more expensive) supply sources, such as the oil sands.

Horses for courses: the best, most efficient way of reducing the consumption of carbon is to raise the price of carbon — not oil or coal or any other roundabout way of approaching the problem. Realistically, that means a carbon tax.