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Death, taxes and carbon

Carbon taxes are coming and we don’t even know it. They are coming because of a certain oil well failure in the Gulf of Mexico and because Western governments need to find new sources of income to tackle their massive deficits.
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Luc Duchesne hs a
Luc Duchesne is the president and CEO of Bio-Carbon Systems International Inc. in Sault Ste. Marie.

Carbon taxes are coming and we don’t even know it. They are coming because of a certain oil well failure in the Gulf of Mexico and because Western governments need to find new sources of income to tackle their massive deficits.

British Petroleum's wellhead failure in Louisiana is perhaps the most significant environmental event of the third millennium and it might offer the perfect storm of opportunities to turn into an even more significant economic event.  

The oil spill might be to President Barack Obama’s administration what Hurricane Katrina was to President George W. Bush:  an urgent need to rebrand his presidency and show decisive actions.  He’s been speaking tersely about BP’s need to repay the damage caused by the oil spill and this sets the context for a cultural change.

It will cost BP billions of dollars. There are talks of over $4,000 per barrel.

BP shareholders will have no choice but to fork out the money to restore the company’s image, and maintain the company’s right to drill and pump for oil.   This is especially important because in the litigious United States of America, every fisherman affected by the oil spill has the right and the inclination to file a lawsuit against BP.  As I’m writing this article, fishermen have filed 130 such lawsuits against BP. 

Mind you, it’s not particularly unusual that an oil company has to cover environmental costs associated with pollution.  Among many, the wreckage of the Exxon Valdez had led the way, thanks to pictures of oil-coated seabirds.   But if I were running a government with a runaway deficit and growing need of cash, I would see BP’s disaster as a perfect storm of opportunities. 

I would say to the public:  “Lookit, it’s obvious that we need to create an environmental fund to mitigate the impact of environmental disasters so our fishermen can carry on with making a living.” After much debate and brow beating, every political party on earth would agree in principle but there would be massive arguments about the mechanisms at play to tax environmental pollution.  Particularly, every interest group would come knocking at the door to help the government find the right mechanism for creating an environmental fund.

Stop looking. 

Carbon emissions are already seen as currency in some parts of the world.  The European Carbon Exchange already trades over $200 billion per annum in carbon offsets and the voluntary carbon market of North America is already trading over $700 M per annum in carbon offsets. 

Few people acknowledge that under the current political regimes, North American carbon emitters are already under the microscope despite the fact that both Canada and the US are not signatories to the Kyoto protocol on the reduction of greenhouse gas emissions.  But within North America, provincial and state jurisdictions are already engaged in controlling and taxing carbon emissions. 

Take Alberta, for example:  the province has established legislation which require polluters to pay $15/tonne CO2 into the province's Climate Change and Emissions Management Fund.  In British Columbia, consumers of fossil fuels will be charged $20/tonne of C02 from July 2010, $25/tonne from July 2011, and $30/tonne from July 2012.  For comparison, a tonne of carbon in Europe is worth about $20/tonne.

Not only do we know that it is possible to legislate carbon emissions in North America, but the oil spill in the Gulf of Mexico is about to change the way we do business in the carbon industry.   President Obama has too much at stake.   In the hallways of academia, this is called the “internalization of the cost of environmental pollution.”  In government offices, this is called a way to reduce gaping deficits.  To consumers, it means that they will pay a premium for products whose manufacturing led to emissions that cause asthma and climate change or acidify lakes.

Is this a bad thing for Canada and Northern Ontario?  Not if the transition from a fossil fuel economy to a carbon economy is handled appropriately.  On the one hand, this could support economic diversification as forests would become places where carbon is sequestered. The principle, however, is that most carbon protocols require for projects to show additionality:  they have to capture carbon beyond what is generally seen as business as usual.  

On the other hand, this will help mainstream renewable energy technologies as they will be treated at parity with fossil fuel technologies.  Currently, there are various subsidies to the fossil fuel industry that stifle the emergence of the renewable energy industry and there is no doubt that carbon taxes would even the playing field.


Luc Duchesne is the president and CEO of Bio-Carbon Systems International Inc. in Sault Ste. Marie. 




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