Rethinking Lifestyle

Recently I was discussing a tax on carbon with some farmers. Readers of this blog know that I strongly advocate for a tax shift away from income to a tax on consumption, more specifically the consumption of fossil based energy – carbon. My argument is that it is essential that we move away from our dependence on fossil fuel and cheap energy, and that a tax on carbon is the most practical way of motivating such a move. On the other hand, anyone following the Tax of Carbon discussion knows that on the whole farmers are opposed to such a tax. The discussion was interesting.

I had, at one time, thought that a simple tax shift could work. I had thought that the money our government currently generates by taxing income could simply be shifted to the oil and natural gas. Presumably this tax would be applied at the wellhead, and the market would look after almost everything else. For a typical household, this would mean that it would no longer be paying a tax on income, but it would be paying a lot more for the fuel needed for heating and driving. This money would not be paid directly to government, but to the oil companies who would be passing on the tax they has paid at the wellhead. When averaged out, the disposable income available to the household would not be affected, but households using a lot of energy to heat their big poorly insulated homes would be losers and households with small, well insulated homes would be winners. Households driving a lot, with gas guzzling cars would be losers, and households driving a little with small, electric cars would be winners. Much of the writing one finds on the internet today assumes a tax on carbon could work this way.

But I now see that it’s more complex. There are energy intensive sectors. How will they be affected? Take trucking: when fuel prices go up, trucking companies have frequently added a fuel charge to their fee. This allows them to cover their costs, but a significant carbon tax would increase the cost of transportation, and less would be transported. There would be fewer trucks on the road. Truckers would need to look for other jobs. Airline: because of the price of fuel, the price of tickets would go up. Travel would be reduced. Airline employees would need to look for other jobs. By its very nature, transportation is energy intensive, and if we are serious about living sustainably we will have to rediscover lifestyles where we travel less and what we consume is produced locally. This is unavoidable.

But what about agriculture? Subsistent agriculture is not energy intensive, but modern agriculture is. Farmers buy large amounts of fuel to power their tractors and the production of chemical fertilizer needs much fossil energy. But unlike the truckers and airlines that can pass added costs on to the consumer, who then decides if the service is necessary at that price, farmers cannot do that. Farmers are price takers, not price makers. A substantial carbon tax applied at the wellhead and offset only by the elimination of tax on farm net income would make modern farming impossible. The reduction in income tax would not be enough to offset the additional taxes paid through the carbon tax. How do we deal with that?

BC has now had a carbon tax for several years. The tax is modest, nevertheless it seems to be altering behavior some. BC has dealt with this agricultural problem by exempting agriculture from the carbon tax. The Manitoba government too, in its Made in Manitoba Plan, is proposing to exempt agriculture from the carbon tax. Is this the answer? I think not, because exempting agriculture implies that the agriculture industry does not need incentives to encourage more energy efficient ways of producing food. Within modern agriculture, not all farming practices are equally energy efficient. One/third of the fossil energy expended in Manitoba is expended in agriculture. If we want to reduce our production of greenhouse gases, we need the help of the agricultural sector.

I find it unfortunate that there is singularly little conversation about how a tax on carbon could be designed to have the desired effect within the agricultural sector. Farmers, too, need to acknowledge their overly heavy dependence on fossil energy and join the discussion of how policy could address that dependence.

For a good discussion starter on this topic read this essay by Darrin Qualman of the National Farmers Union. (Download)