Business as Usual Budget

“Business as usual” is a phrase used by economists and environmentalists alike when referring to future emissions levels. They ask, “What will be the emissions if we carry on with business as we have done in the past?” Then they can compare the business as usual prediction with what will happen if they implement various measures.

For the environment, yesterday’s budget can only be described as Business as Usual. It will have virtually no impact on future emissions.

Budgets are one of the key policy levers governments can use to influence the direction of emissions. They affect both taxes, and government expenditures, each of which has a major influence on consumer and business behaviour. Budgets, of course, are far from the only policy tool available. Regulations, such as appliance and car fuel efficiency, or carbon trading or emissions caps can also be critical. But budgets are a key element of letting the silent hand of the marketplace take its action.

This budget missed the mark. The behaviour of the marketplace will be largely unchanged. There were a few green initiatives, but the budget cannot be called green.

The budget funded some previous announcements, such as the handover of Federal funds to provinces for climate initiatives. This measure had already been announced.

One of the more interesting initiatives is a system of feebate on vehicles, where a tax as high as $4000 will be placed on energy hogs, and fuel sipping hybrids and efficient cars will get a rebate. But the definition of hog is pretty high, so the vast majority of vehicles will see no tax. Hummers, Yukons and the like will be taxed. Taxes are as follows:
13 l/100 km pay $1000

14 l/100 km pay $2000

15 l/100 km pay $3000

16 l/100 km pay $4000

To put that in perspective, a vehicle has to consume more than 3 times the fuel of my Honda Insight to pay tax. Those kinds of vehicles should probably be banned. Do we need tanks on the roads?

It will be interesting to see how this plays out with Buzz Hargrove and the auto companies. They have pushed hard against this. But because it affects only the very worst of the worst, they may be willing to let it go. We will see.

The budget has a small measure for wind and solar. They extended the application of Class 43.2 from expiring for equipment purchases before 2011, to equipment purchased before 2020. Big deal. Class 43.2 allows a firm to deduct 50% of a capital expenditure from income in the year of acqusition. It is a good incentive, but only for Specified Business Corporations, which includes manufacturers, processors and energy companies. It does not include wholesalers, retailers, or commercial firms. And it is only effectively available to profitable companies, which basically means energy companies like oil companies and utilities. Extending the date, without broadening the number of firms that can use the incentive is essentially useless. So it is business as usual – the Federal government making sure that incentives for renewables can only be used in a marginal way, but at least they can be used by incumbent energy companies.

The budget made timid steps to remove some of the tax breaks for the oil sands. The tax breaks will be phased out between 2011 and 2015. Will this make a rush of firms to get things built before the deadline? Just what Alberta needs is a tax induced boom on top of their existing boom.

There is $1.5 billion for biofuels, although details on how this will be spent are sketchy. And it matters greatly where this is spent. If it is spent on corn based ethanol, the environmental benefit is marginal at best. Canola based bio deisel might be more interesting. And waste fat streams are of course interesting, but you shouldn’t need $1.5 billion to tap that. It is even debatable if lavishing subsidies on biofuels is good for farmers. Yes, it raises the price of corn, or oil crops. But it also raises the price of animal feed. And Canada is a large net exporter of pork and beef. We may have a net negative impact on the farm economy, and a marginal benefit for the environment. All at great expense to the taxpayer. Lets hope they spend these funds wisely.
What is the budget missing?

- Transit spending. Canada’s cities are congested, and too many are forced to drive because there is no other option.

- Energy taxes. This is the big one. If you raise the price of something, in the long run, demand for the commodity will fall, as people modify their behaviour. We are not serious about emissions until we decide to use the tax system to shift demand.

- Incentives for conservation and efficiency are lacking. These can take many forms The Municipal, University, School and Hospital sector can have grants and loan programs. Grants for ground source heat pumps, solar hot water, and certain building techniques can be useful. Federal buildings, and vehicle fleets, can always use work.

- Incentives to encourage a shift to fuel efficient rail, and away from inefficient and congestion causing trucks are lacking. In fact, the “infrastructure spending” announced specifically mentions road construction. Rail, transit, even bicycling would seem to be deserving of more attention.

- There is a lack of “big ideas”. How about some funds to study the feasibility of high speed rail between Toronto and Montreal to get people out their cars and off the fuel intensive airplanes? How about looking at electrifying some of the rail system? How about funding more deep lake cooling for Toronto?

We need a government with green at the forefront of their thinking. So long as the environment is a sideline, we can expect little help from our tax system and government expenditures in moving to a sustainable society.

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