The Bull Meter: Jack Layton on cap-and-trade

There’s no reason to think "big polluters' won’t pass on those extra costs to consumers

[mac_quote person=”Jack Layton” date=”April 28, 2011″]I don’t accept this analysis that is being offered, that the big polluters should suddenly be justified to raise prices . . . If you look at their own books, they are already booking the cost of a cap-and-trade system and they’re dealing with it elsewhere[/mac_quote]

[mac_bull score=”5″]

Layton’s statement means he doesn’t believe a cap-and-trade program would lead to an increase in gas prices for consumers, something the NDP leader later reiterated to reporters, according to a tweet by the CBC’s Rosemary Barton. That is “absolutely wrong,” says Andrew Leach, an assistant professor at the University of Alberta’s School of Business.

In a cap-and-trade system, the government sets an overall cap on emissions for industry and distributes limited authorizations to emit. Polluters are free to buy or sell these allowances, or bank them for future use. This means that they can either invest in green technologies to lower their emissions levels to or below their cap, or continue to emit at higher levels, and buy allowances to cover that excess. The whole idea behind cap-and-trade, and any other carbon policy, is to attach a price tag to emissions to create an incentive for price-conscious polluters to modify their behavior.

Now, businesses (i.e. what the NDP calls “big polluters”) are first to foot the bill for cap-and-trade, but there’s no reason to think that they won’t pass on those extra costs to consumers, (i.e. voters). In the refinery sector, in particular, “most of the evidence is that cost pass-through in refined products is pretty near to 100 per cent, and pretty quick—within two months or so,” says Leach. The NDP reportedly would have refineries pay only for the green house gases they emit while producing refined gas products, and not for the emissions coming out of drivers’ tailpipes, which have been filled with those refined products. Still, even that limited version of cap-and-trade would hit consumers’ pockets, by lifting gas prices by three or four cents a litre, according to Leach.

And, quoting Rosemary Barton’s Twitter account again, Layton seemed to acknowledge our point when he later admitted “he can implement cap-and-trade, but he cannot legally prevent companies from passing costs onto consumers.”

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Layton’s quote

Rosemary Barton’s tweets

Cap and trade 101

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