Good afternoon, and thank you, Mr. Chair.
My name is Todd Myers. I'm the environmental director of the Washington Policy Center. For the past two decades, I've worked on environmental policy at the Washington State Department of Natural Resources, where we dealt with forestry, and then as an energy and environmental analyst at the Washington Policy Center.
Washington state's history over the last decade can be instructional regarding the politics and economics of carbon policy.
It's clear that increased levels of CO2 trap heat in the atmosphere and over time increase temperatures, even if there is debate about the level of impact. The challenge for policy-makers is how to make effective climate policy when there is scientific uncertainty while dealing with the political and economic risk of those policies. I've sat on both sides—as an analyst and in government—in trying to deal with these policies.
Bad policies can induce political backlash. Ill-considered policies waste money on efforts that are ineffective, squandering time and opportunity to address climate change.
Washington state's climate policy has faced all of these challenges, and legislators and the voters have repeatedly rejected carbon taxes, despite polling that shows people supporting reducing CO2 emissions.
In 2016, Washington state voters rejected a revenue-neutral carbon tax, initiative 732, which would have put a price on CO2 of $25 U.S. per metric ton, while reducing sales and business taxes. It failed by a wide margin of 59% to 41%.
Last year, voters rejected initiative 1631, which was a $15 per metric ton carbon tax that increased annually. The revenues would have been spent on a wide range of efforts to reduce CO2 emissions and fund social justice efforts. Despite having the support of our governor, it also failed, at 57% to 43%.
Legislators in Washington have also been reluctant to pass carbon taxes for obvious reasons. No carbon tax policy has even received a vote on the floor in Washington state's legislature in the last eight years, despite the fact that Democrats controlled the state House, or the House and Senate during that entire period of time.
Polling data and discussions with people across Washington state identify a few reasons why they have rejected the taxes, even in an environmentally conscious and wealthy state like Washington.
First, there is evidence that Dr. Roger Pielke Jr.'s “iron law” of climate change is in effect. People are willing to pay some price for the environment, but it has limits. During the campaign for last year's carbon tax, we created a simple online calculator that allowed people to estimate their first-year costs of the tax.
One call I received was emblematic of the polling results after the initiative failed. The man on the phone asked if I had created the calculator and asked me to walk him through it. When he realized the cost, he said, “Holy cow, I was going to vote for this.” He was willing to spend something, but it had its limits.
This is reflected in a recent survey by the Energy Policy Institute at the University of Chicago. Their research of 1,202 Americans last year found that many were willing to pay $1 a month more on their electricity bills to fight climate change, but when the cost went to $10 a month, support fell from 57% down to 18%.
Also, voters don't trust government to spend money wisely and they worry that promises won't be kept. I was generally supportive of the revenue-neutral carbon tax in Washington state and I voted for it, but when I spoke with others, pointing out that many of the households would see their tax bill decline under the initiative, the common answer from people was that they simply didn't believe the bargain would hold. People worried that other taxes would subsequently be increased, leaving everybody with higher taxes in the end.
Even good policy can be undermined by fears that when the other shoe drops, people will be left with a policy they oppose. After two decades in environmental policy, I have to say that I sympathize with this concern.
Finally, as has been discussed, not everyone can adjust to carbon prices. This manifests itself in two ways.
The first, as mentioned, was leakage. I won't talk more about that other than to say that we see this in the United States with the regional greenhouse gas initiative, where they have a cap-and-trade system, and whereas although United States manufacturing jobs have actually increased over the last several years, in the northeast where the cap-and-trade system exists, they have gone down. Essentially what they have done is outsourced manufacturing and then traded those products back in.
Second, it also applies to families for whom alternatives are costly or unavailable. For those who see no path to avoid the taxes, a carbon price doesn't mean helping the environment. It simply means more taxes.
These challenges, amongst others, add up to a consistent rejection of carbon taxes in Washington state and may help explain some of what occurred last year in Ontario.
Policy-makers also face the difficulty of creating policies that are economically sound and environmentally effective.
One challenge of a carbon tax is how to set the appropriate price. Yale professor Bill Nordhaus, who won the 2018 Nobel Prize for his work on climate modelling, outlined the costs and benefits of different temperature goals. He found that the optimal goal was about a 3.5°C increase by 2100. With a target of 2° by 2100, like the Paris climate accord, he found that the costs would outweigh the benefits by 4:1.
Now, to be clear, Dr. Nordhaus believes, and I believe, we should reduce our CO2 emissions. His modelling, however, is an important reminder of two points.
First, we need to be careful that we are not doing more harm than good. Signatories to the Paris climate accord are already facing the high costs of meeting the strict targets, and are failing to identify CO2 reductions consistent with their commitments in that agreement.
Second, to ensure that climate actions don't cost more than the benefits they provide, policy should focus on technology improvements that reduce the cost of limiting CO2. The cost-to-benefit ratios calculated by Dr. Nordhaus can be improved with technology, making energy efficiency and carbon reduction more cost-effective and bringing other temperature targets in line.
As you heard testified on Monday, regulatory approaches hide the costs of CO2 reduction, making it more likely to exceed appropriate price levels. That lack of transparency also makes it more difficult for individuals to respond effectively to avoid those costs and reduce CO2 emissions. With the many political and economic challenges facing carbon taxes, technology improvements offer the best option to reduce CO2 emissions in ways that are durable and effective.
Much of climate policy is focused on increasing prices to create a disincentive to emit CO2. A similar result, however, can be achieved by increasing the elasticity of demand of existing energy prices. Personal technology that reduces transaction costs of information increases the ability of individuals to effectively react to existing price signals without raising carbon taxes. Rather than focusing solely on the level of the carbon tax necessary to induce a desired behaviour change, we should also be considering how to help people change behaviour more easily. As noted in Monday's testimony, two-thirds of Canadian emissions come from small emitters. Lowering the cost for individuals to reduce their emissions is key to any successful CO2 reduction strategy.
These technology changes are not subject to the ebb and flow of politics. People don't give up technology that is saving them money, no matter who controls Parliament. There are several examples of this opportunity.
A mapping app called Cowlines, based in Vancouver, provides users three options to reach their destination: the fastest route; the least expensive way, including driving, transit and ride-sharing; and the most environmentally friendly way. Many users choose the environmentally friendly route, and they average about one kilogram of CO2 savings per trip.
Smart thermostats from Toronto-based ecobee and California-based Nest use information and artificial intelligence to help homeowners reduce energy costs while keeping their house comfortable. Nest works with some utilities in the United States to offer what it calls “rush hour rewards”, a voluntary system that reduces home temperature during peak electricity demand and offers monthly rebates.
This is not an endorsement of these products, but they are tangible examples of technologies that reduce CO2 emissions at existing prices. The opportunities to empower citizens with technologies are emerging rapidly, and policy options are in their early stages. The iPhone has only been around for about a decade, and yet it has massively changed our society and lifestyle. With that rapid change, it is hard to clearly identify policy options, but here are three options we should explore:
First, we should remove regulatory barriers that reduce the value of information technology. Electricity tariffs are often designed to protect consumers with the assumption that they do not have access to real-time price information and therefore can't respond. That is changing. We should, like Nest, allow consumers the opportunity to use those price signals to conserve energy and save money.
Second, federal, provincial and local government data should be transparent and available, being sure to protect individual privacy. The power of Cowlines is in the aggregation of dozens of disparate sets of data, and providing it in an understandable format for users.
Third, where there are specific challenges, government can offer prizes for technology solutions. Last year I was a mentor in the Fishackathon, organized by Toronto-based HackerNest and sponsored by the Government of Canada. Teams competed to develop smart-phone-based solutions to fisheries problems. The prizes weren't large, but the creativity of the participants was really amazing.
These are just a few approaches that can help incentivize technologies that bring down the cost of carbon reduction. Empowering people to reduce energy use is less subject to political reversals, works with citizens' interests rather than against them, and takes advantage of opportunities that are emerging every day.
The great inventor Buckminster Fuller once said, “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” That's the opportunity we have in front of us.
