Carbon pricing: Consumers do think of the future

Policy-makers talk carbon pricing. Industry balks and threatens costs will be passed on to consumers. Media posts interview with retired grandmother filling up Toyota Corolla at the pump. Elected officials run for the hills. But people aren’t stupid, and they will accept short-term costs for long-term gains.

The above summary is highly contrived, but it’s not too far removed the delicate political equilibrium we find ourselves in with regard to pricing pollution.

Carbon pricing, whether through taxes or cap and trade systems, is textbook economics—it’s great policy, efficient, and effective. It’s also in pretty broad use with hundreds of millions of people and about a quarter of the world’s emissions subject to some kind of cost on greenhouse gas emissions.

The central argument against implementing cap and trade or carbon tax has and always will be economic cost. Detractors argue that consumers (also voters) would never voluntarily opt to pay more now for long-term gains. I’d like to hammer away at that notion.

Show me the money

It’s not as if carbon pricing has to come with any short-term economic cost. Revenue raised from BC’s carbon tax has allowed the province to reduce corporate income tax by $440 million, personal income taxes by $237 million, and provide $194 million in low-income tax credits (2013-14).

Aside from that, depending on the structure of the market and the degree to which its economically competitive, carbon fees may take the nip out of corporate profits moreso than consumer wallets.

True, the application of carbon pricing will create winners and losers in society. I can’t help but think of all those large camper towing trucks I passed on the Trans-Canada Highway this summer—they can’t be too happy about paying more. But by putting a dollar figure on carbon pollution we’re closing a loophole in the system that’s costing us money, both in the long-term and short-term. That’s not just on the costs of climate change manifest through extreme weather and environmental degradation, but also in health and infrastructure costs (a topic for another day).

Alas, to the heart of the matter. I’d like to give people credit. They’re smart and can think of the future—here are a few examples of that:

Why people get the big picture

Canadian Pension Plan

Brought in in the 1960s, CPP is one of the mainstays of our country’s social security net. Individuals and their employers each contribute about five percent of the employee’s gross earnings (up to a maximum amount) in exchange for future, post-retirement returns. In a recent Forum poll, 2/3rds of respondants wanted to expand both contributions and benefits. This view was notably higher among the elderly and people without kids.










Investment in energy efficiency

Ever spend a little more on a car in order to achieve higher fuel efficiency? While NREL research demonstrates that people often undervalue the future savings of higher fuel efficiency when purchasing a car, fuel economy is a big factor for many buyers. I’ve even noticed a big uptick in fuel efficiency messaging in light truck TV ads, which would have been unheard of a decade ago.

How about housing upgrades, ever up the ante on windows and insulation or take advantage of the ecoENERGY retrofit program? I’ll always remember my Dad proudly telling me that he opted for a high efficiency electric furnace when he built our family’s new house in ’88.

The Canadian Home Builder’s Association just released the results from their latest study on new home buyer’s preferences and said, “ dominated the ‘must-have’ list for new homebuyers.”

From a QUEST presentation, here are the top four “must haves” for these home purchasers:

  1. Walk-in closets
  2. Energy efficient appliances
  3. Overall energy efficient home
  4. High-efficiency windows

Private investment

Civilization and a modern economy are based on a collective trust in the future. Why else would you transfer a valuable resource (namely, currency) to a third party financial agent in exchange for future benefit? With about 20% of the Canadian population contributing to RRSPs and eight million tax filers claiming investment income of some kind, it’s fair to say that a hefty proportion of our nation is willing to set aside present day consumption in exchange for a better sunset.

True, Canadians are mired in debt and the high water mark of the personal savings rate peaked thirty years ago (Canadians set aside 20% of their disposable income then), but people know they should be doing better.


What’s the point?

I’ve just highlighted three examples where people are willing to invest in their future with small upfront costs. Astute readers will note that these are decisions that yield private future benefits. If I wanted to appeal to the less self-concerned, I could have pointed out that the benefits of collective investment in infrastructure, military, public healthcare, and education come far into the future, with the tax hit coming today.

You can take this to the bank: Individuals will respond to incentives with an eye to the future. By reducing the argument against carbon pricing to “all costs bad” detractors are going against the long-term instincts of smart consumers.


Images (Flickr): brookward, lendingmemo

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