JesseOct 19, 2024

Today lets talk carbon taxes!

Coming from a Canadian perspective, while a carbon tax is theoretically the economically most efficient method for reducing emissions, the consumer carbon tax is a dead policy walking.

So what could come next that would be 'do something'?

Show threadJesseOct 19, 2024
Before I go there, a couple thoughts on carbon taxes in the first place.
I think they *can* be more effective at driving investment decisions than a cap and trade mechanism, but that comes from the long term certainty on the price.
Show threadJesseOct 19, 2024
The lower the volatility in expectations, the lower the price needed to drive the same level of response.
But that points to the problem with carbon taxes. If the public / investors do not have confidence that the policy will be stable, they will treat it as volatile.
Show threadJesseOct 19, 2024
And due to the asymmetries of how we treat risk ('if this project ends out making lots of money, I will get a small bonus, if it looses lots of money, I will get fired'), and status-quo bias, that basically kills investment.
Show threadJesseOct 19, 2024
Now on the consumer level, as @AldyenDonnelly has pointed out and @cadlam's shows
https://x.com/cadlam/status/1846577249438294148
consumers under rate future operating costs, especially on things that have a major capitol expenditure up-front, and may be done on an urgent basis.
Christopher Adlam (@cadlam) on X

@aaronhoyland @KristinRaworth That's the premise, absolutely, but there is a cost to reducing your carbon footprint, which may make it impractical to do so. For example, I took advantage of the provincial hybrid heat pump program because it cut the price in half and I was able to retrofit central air to my

X (formerly Twitter)
Show threadJesseOct 19, 2024
Ok, so where do we go from here?
About the only approach I can think of that may actually have the scale to make this work is a more heavy handed tax and subsidize regime on residential / small commercial devices that have significant *direct* ghg implications.
Show threadJesseOct 19, 2024
We have to assume electricity will continue to decarbonize, and we need sperate policies to drive that (anouther threat for anouther day) AND electricity volumetric cost MUST be kept (efficiency adjusted) competitive with fuels.
Show threadJesseOct 19, 2024
This means that we will need to provide a tax / subsidy regime on things like vehicles, HVAC, appliances, yard tools, that provide a differential cost on the purchase / installation of those roughly equivalent to what the carbon value over a normal lifetime would be.
Show threadJesseOct 19, 2024
We could start with it being mostly subsidy, but this regime needs to be permanent, and non-discriminatory.
That means that there cannot be any frictions in it being applied, it needs to be applied at the counter, and it cannot depend on income, what's being replaced, etc.
Show threadJesseOct 19, 2024
No frictions means no energy audits or upfront assessments to qualify. Any imposed frictions disrupts the potentially urgent or spontaneous replacement.
Show threadJesseOct 19, 2024
I would probably have installed a heat pump last year ( I got quotes), but I didn't have time to deal with an energy audit, and my existing system wasn't end of life yet to motivate me.
Now the subsidies are too restrictive, and the value proposition is poor...
Show threadJesseOct 19, 2024
Permanence - in the long run as this needs to be permanently fiscally sustainable, it needs to shift so that the rare 'dirty' device pays fees, rather than large subsidies on the 'clean' devices.
Show threadJesseOct 19, 2024
In addition there needs to be problems to ensure that vendors / installers stock the 'clean' options, and are capable of installing them on an emergency basis.
In the end the price level needs to make the 'clean' option cheaper up front, and leave the frictions on the 'dirty'.
Show threadJesse
Do we think anyone is actually interested in a 'do something' approach enough to implement something like this? Or will we just get a hodge podge of feel good actions that amount to 'do nothing an hope it solves itself'?
Anyone have any real alternatives here?
Oct 19, 2024 at 9:04pmWeb
Show threadJesseOct 19, 2024
We have seen many approaches of 'just ban the dirty' but there are always edge cases, and those approaches have not been able to maintain support as the actual bans get near unless you get so lucky as to have the clean option eclipse the dirty unsubsidized (see LED).