Industrial carbon tax and carbon capture requirements increase the cost to produce energy, making Alberta uncompetitive with U.S. counterparts

By Jack Mintz. He works at The School of Public Policy, University of Calgary.

Impact of Carbon Policies on Competitiveness in Oil, Natural Gas, and Electric Power: An Alberta–US Comparison

• This study, based on a newly developed methodology to assess the impact of corporate, royalty, and energy taxes on production, estimates the impact of taxes and carbon policies on marginal cost of production in Alberta, Texas, and New Mexico for oil, gas, and power industries.
• In the absence of carbon policies, the existing tax and royalty system in Alberta is tax competitive except for conventional oil, despite the differences in tax systems among the three jurisdictions.
• US and Canadian capital subsidies encourage carbon, capture, utilization, and storage investments but do not improve cost competitiveness since the subsidies are offset by CCUS costs for marginal investments.
• With the existing Alberta carbon tax at $95, not only is Alberta’s conventional oil tax disadvantaged but the oil sands lose most of its tax advantage compared to projects in New Mexico or Texas (with enhanced oil recovery). Natural gas production remains tax competitive. With a carbon tax at $170, oil sand investments are somewhat tax disadvantaged.
• As Alberta’s effective carbon tax rate is increased by raising the rate and/or limiting allowances, both oil and natural gas production will be heavily disadvantaged compared to Texas.
• While much focus has been paid to the impact of the carbon tax on the oil sands, the biggest impact will be on the electric power industry. The carbon tax will noticeably increase power prices in Alberta which will impact competitiveness of many industries. This illustrates well the competitiveness issue for Alberta when carbon taxes apply in Canada but not the United States.

 

Red States Are Winning the Prosperity Race

By Richard K. Vedder & Nicholas Jadwisienczak.

"Republicans disheartened by growing fears of electoral losses at the federal level this fall can take some solace in evidence from a new, soon-to-be-released study that we coauthored for Unleash Prosperity, a group focused on promoting pro-growth policies. The graph below shows the results from that study, revealing that in this century economic growth has been substantially greater in the Republican Red states.

The new study focuses on the more recent years 2020-2024, using modern statistical techniques to show that even after other factors impacting economic change—like climate, the proportion of the population working in manufacturing or producing oil, or the degree of urbanization—are taken into account, Republican-dominated states grew sharply faster than Democratic oriented ones. Controlling for several potential competing explanatory factors, solidly Red states typically had over 25 percent more growth in personal income in the first part of this decade than their Blue counterparts.

Why? Republicans tend to have greater faith in markets to allocate resources and distribute income and wealth and are less inclined to tax the public heavily to fund massive social services, which research shows weaken work effort and business investment—key components in economic growth. For example, the highest income earners in heavily Blue New York City pay over 14 percent in state and local income taxes on some of their income, compared with zero in a more Red city like Miami or Dallas. All eight states with zero state income tax are Red or, in one case, New Hampshire, a swing state that has a history of electing both Democratic and Republican political leaders.

 

Our statistical analysis confirms that one of the biggest sources of income growth in the Red states has come from the in-migration of generally highly productive people fleeing high-tax Blue States. The world’s richest man, Elon Musk, fled deeply Blue California for Red Texas (after earlier moving to the U.S. from South Africa), while leading financial guru Ken Griffen fled Blue Illinois for much Redder Florida. Census Bureau data show that from 2020-2025, Florida received net over two million migrants, divided nearly equally between immigrants moving to the Sunshine State from other countries, and native- born Americans fleeing states like California (which had a massive outmigration of nearly 1.7 million Americans to more congenial locales).

Our study directly refutes a quality-of-life ranking by CNBC that faced conservative backlash after stating that the 10 worst states in the U.S. to live in were Republican states. Florida Governor Ron DeSantis lashed out at the network over that study, calling it “nonsense.”

Our study shows that it was not just productive workers and their families that moved to these Red states, but capital resources as well. For example, Texas recently surpassed California for having the most corporate headquarters among Fortune 500 companies. Companies and people alike vote with their feet, seeking relief from overly expensive and inefficient government programs.

But isn’t a major reason people and companies are moving South the warmer temperatures? Not really.

One of the leading states in out-migration has been strongly Blue but climatically heavenly Hawaii, while such Red states with bitter winters like Montana and South Dakota had significant in-migration from other, often Blue, states.

To be sure, state-based public policy was not the sole factor in explaining differential rates of economic growth. Manufacturing-heavy states like Pennsylvania, Ohio, and Michigan were hurt by the rise of modern manufacturing in emerging nations like China and India, which had lower-cost labor.

A high level of unionization (typically far more prevalent in Blue states) was associated with lower growth, while growth was enhanced by having a large proportion of immigrants in the population, consistent with other research showing immigrants typically have high rates of labor force involvement and are increasingly relatively highly skilled, including such economic superstars as Musk (Tesla, Space X), Nelson Huang (Nvidia) and Microsoft CEO Satya Nadella.

More urbanized areas, controlling for other factors, typically had lower rates of growth as well, probably at least partially because they were also more likely to be associated with far-left governments like Mayor Zohran Mandami’s New York City.

Our little study comes at a most appropriate time, our nation’s 250th birthday, as it clearly demonstrates some of the genius of our nation’s Founders. They put together a federal system of government that largely eliminated legal hassles like passports and work permits for those seeking to move to a more promising environment. As Justice Louis Brandeis memorably said, America’s federal system was one where “a single courageous State may, if its citizens choose, serve as a laboratory and try novel social and economic experiments without risk to the rest of the country.”

Our national government would do well to learn from the actions of the states, benefiting from the presence of 50 laboratories engaging in sometimes novel and innovative experiments that other states could learn from, not to mention the federal government in Washington, D.C."

What Mamdani Can Learn From Hugo Chávez's Government-Run Grocery Store Debacle

Venezuela’s government-run grocery stores led to endless lines, empty shelves, quotas, and corruption.

By César Báez in Reason. 

"New York City Mayor Zohran Mamdani held up a bunch of plantains at a press conference on Monday and promised that New York City shoppers would pay 30 percent less than "typical retail prices" when the city opens five government-run grocery stores at a cost to taxpayers of $70 million.

"How are you going to keep people from taking advantage of that deal?" one reporter asked the mayor. "Is there going to be a limit on the number of items that someone can take?"

"Our RFP [Request for Proposals] makes very clear that this is a program for New Yorkers to be able to put food on the table, not a program for people to be able to make a quick buck through reselling," the mayor responded, before turning it over to Jeanny Pak, the interim president of the New York City Economic Development Corporation. She said the city was looking into a "library card-esque" system that would allow the city to "manage who's buying," with a focus on "everyday New Yorkers."

The city's plan rests on the assumption that it can control who buys subsidized goods. Yet Venezuela's experience with government-run grocery stores suggests that assumption deserves scrutiny.

When Venezuela's socialist president, Hugo Chávez, created a nationwide network of government-run grocery stores called "Mercal" in 2003, he faced the same conundrum of how to control excess demand when prices are set artificially low.

At first, Mercal seemed to work. It quickly became one of Chávez's most popular social programs. In a 2007 episode of his talk show, Aló Presidente, Chávez compared Mercal's prices with those at a nearby grocery store. A kilo of sugar at Mercal cost 740 bolívares, compared with a price of 1,300 bolívares elsewhere. Chicken sold for 1,900 bolívares instead of 4,550. The discounts were roughly 43 percent to 62 percent below prices already regulated by the government. Chávez called Mercal an instrument for building "socialist commerce."

More than 70 percent of households reported buying at least one item at Mercal during the program's peak in popularity in 2005. But eventually artificially low prices led shoppers to clear out the shelves, and the stores became famous for lines that would wind around the block. The share of households shopping at Mercal plummeted below 40 percent by 2014.

The gap between Mercal's subsidized prices and prices at other grocery stores created an obvious resale opportunity. There were complaints of diverted goods, fictitious purchases, store clerks allowing their friends and relatives to jump the line, and corruption in procurement and distribution. Hauling food across the border to resell at market prices in Colombia became a booming industry. Black-market reselling even spawned a new profession: bachaqueo.

The government responded to the shortages with tighter controls. It capped purchases, assigned shoppers a weekday based on the final digit of their national ID number, and registered sales by ID and fingerprint. Some stores required shoppers to bring a baby or present a birth certificate before they could buy diapers.

Centralized procurement created another set of problems. In 2010, Venezuela's Comptroller General audited the state food distributor and found unjustified direct awards, food containers stored outdoors, damaged products, and major discrepancies between inventory and port warehouse records.

Mercal alone did not cause Venezuela's food shortages. It operated inside a larger system of national price and exchange controls, subsidized imports, expropriations, precarious property rights, monetary financing of government deficits, and declining oil production.

Thankfully, Mamdani's program is limited to New York City.

New York's experiment is local, far more limited, and therefore, lower-stakes. Private contractors will operate the stores, while auditors, courts, reporters, and the public can scrutinize the results. Chávez, by contrast, clamped down on the free press and suppressed reporting on his failed policies.

New Yorkers will also have plenty of alternatives. The city's five municipal stores will become part of a food retail market that includes more than 1,100 grocery stores and 10,000 bodegas. 

But the comparison is still useful because, like Chávez, Mamdani will find that he can't escape the laws of supply and demand. His evasive response to the reporter's question suggests that he hasn't given much thought to how the city would manage high demand for cheap groceries. One way or another, the program will require quotas. The alternative is to tolerate price-sensitive shoppers lining up outside stores to buy discount plantains.

The spectacle of food lines would be a public relations disaster for the media-savvy mayor, who has pointed to his policies as evidence that "socialists not only understand economics, just as well as the capitalists who came before." Mamdani's rhetoric evokes Chávez's, who called Mercal "an instrument" for proving that socialism works and that Adam Smith's theory of the invisible hand was a capitalist lie.

Like Chávez, Mamdani is a socialist, an economic populist, and a gifted politician. He understands the rhetorical power of holding up a bushel of plantains. A government can dictate the price, but it cannot guarantee that the plantains will still be there."

Why Capitalism Is the Most Moral Economic System

"Success comes from meeting the needs and wants of others," says businessman and publisher Steve Forbes.

From John Stossel. 

"I've failed!

I make the case for free markets. Young people elect socialists!

What are they thinking? Do they even think? Do they pay any attention to history? Or economics? Socialism always fails. Only markets create environments that let people prosper.

"Getting the right environment—this country's done it better than anyone else," says Steve Forbes in our full interview. "Give people a chance to be creative, experience liberty, and humanity moves forward."

His magazine has made that point for years.

"You and I are failures," I tell him. "We've tried to convince people about the benefits of free enterprise….[Yet] they embrace socialism," believing "posts from people like actor Mark Ruffalo: 'Capitalism today is failing us, killing us, and robbing from our children's future.'"

"Capitalism has done just the opposite!" replies Forbes. "Deaths from famines are down 99 percent in the last 60 years. Standard of living, 10 times better than it was 50 years ago around the world."

Can Socialists Support Commerce But Not Capitalism?

By Chris Freiman.

"Socialists often criticize US trade restrictions on Cuba. A recent example is the flotilla organized by activists attempting to deliver aid to the island that aimed to draw attention to the embargo. Participants and commentators often frame Cuba’s poverty as a direct result of US policy: lift the embargo, the argument goes, and Cuba will prosper.

What should we make of this argument? For one, the primary driver of Cuba’s persistent poverty is the Cuban government’s own economic policies, including state control, chronic misallocation, and long-standing restrictions on private enterprise. These institutional mistakes would keep Cuba poor even without the embargo.

That said, there’s little doubt that trade barriers cause economic harm, and socialists are right to recognize this. But here one might wonder: can socialists coherently object to trade restrictions while also opposing free market capitalism more broadly?

Many think the answer is yes. The socialist target isn’t free exchange as such, but private ownership of productive property. Socialists object to an economy where capitalists own the means of production and workers sell their labor for wages or a salary. Socialism, by contrast, would create a kind of “workplace democracy,” where firms are owned and operated by workers themselves. They’d collectively make decisions about production, investment, and distribution rather than take orders from a single boss. This could mean workers directly voting on major business decisions or periodically electing managers to act on their behalf. Suppose, for example, that a worker-owned pizzeria is deciding whether to shift from traditional pizza to a more upscale artisanal menu. In a traditional capitalist firm, the owner would have the final say. In workplace democracy, the cooks, servers, and other employees would collectively decide how to proceed. While there might be some conflicts between growth and equality, writes Mike Beggs at Jacobin, such a model would aim to “harmonize firm-level democracy with macroeconomic expansion and a solidaristic wage.”

Under this style of socialism, markets would still play an important role. Central planners wouldn’t decide how to allocate resources to the pizzeria or determine how many pizzas it has to bake. Instead, the pizzeria would compete with rival restaurants for customers just as it would under capitalism. The goal is to retain the information markets provide in the form of prices, profits, and losses while “socializing” ownership of firms.

At first glance, it seems as though this version of socialism is perfectly compatible with free trade. You could have an economy in which firms are democratically owned and still allow free trade both within and across borders.

That’s fine as far as it goes. But there’s a tension lurking in the background. Consider that a central justification for free trade is that it enables all parties to voluntarily enter into an economic agreement in the expectation of mutual benefit. As Adam Smith puts the point:

Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of.

If I want the apples you have, and you want the oranges I have, we’re both better off as a result of a trade. Trade barriers — tariffs, quotas, embargoes, and the like — block these sorts of exchanges. That’s why critics of the Cuba embargo argue that it makes people worse off: it prevents them from engaging in mutually beneficial exchange, which an abundance of research shows is a source of human prosperity.

Once you see trade in this light, it becomes harder to draw a bright line between the kinds of exchanges socialists want to allow and the kinds they want to prohibit. As I mentioned earlier, to qualify as socialist, an economy must not permit capitalists to own the means of production and hire wage laborers. This means that a socialist economy must prohibit freely agreed-upon, mutually beneficial capitalist labor agreements. For instance, suppose Barry doesn’t want to take on the risks and responsibilities that come with being a co-owner of a coffee shop; he’d rather work for a steady wage as a barista for a corporate giant. Nevertheless, a socialist economy wouldn’t allow him to do so. (Otherwise, it would start drifting toward capitalism.)

It’s not clear why trading barista labor for money is all that different from trading apples for oranges. In both cases, people are making voluntary agreements in the expectation that they’ll be better off as a result. Here, then, is the tension. On the one hand, socialists criticize trade restrictions on the grounds that they block mutually beneficial exchange and thereby make people worse off. On the other hand, they want to restrict or eliminate capitalist employment of wage laborers — even when workers voluntarily choose those arrangements.

So something has to give. You can’t easily say, “Let people trade as they see fit because they expect it to benefit them,” while also saying, “But don’t let them sell their labor as they see fit, even when they expect it to benefit them.”

If mutual benefit justifies freely trading apples for oranges, it’s hard to see why it doesn’t also justify freely trading labor for wages. And if workers may trade their labor freely, they may trade it to capitalists — a conclusion that socialist defenders of free trade are sure to find unwelcome."

Drug Prohibition and the Waterbed Effect

Jeffrey Miron.

"A key rationale for drug prohibition is the belief that outlawing drugs makes them less available and more expensive, thereby shrinking consumption.

Decades of evidence, however, suggest this impact is modest, partly due to the “waterbed effect:” enforcement efforts aimed at shrinking the market mainly causes it to shift, in various ways, without much impact on its overall size. Just as pushing down on one part of a waterbed merely forces the water somewhere else, rather than reducing the overall quantity.

Two recent news stories provide textbook illustrations. From the Washington Post,

The Trump administration’s deadly military strikes on alleged drug trafficking boats have not reduced the amount of cocaine entering the United States, but they’re prompting criminal organizations to develop new strategies and tactics and undermining traditional investigative methods, according to a previously unreported assessment by the Drug Enforcement Administration, a closed-door congressional briefing and interviews with current and former U.S. and foreign officials.

In a recent assessment reviewed by The Washington Post, DEA analysts found the strikes had failed to affect the supply or price of cocaine in the United States and had led traffickers to diversify beyond go-fast boats and to avoid international waters, opting instead for larger boats and hemming close to coastlines, where U.S. forces are less likely to open fire. In a closed-door briefing last month, Pentagon officials told lawmakers the strikes in international waters off South and Central America had not reduced its purity.

And from the Financial Times,

In the battle for the seas, drug traffickers are often coming out on top — making Europe, in the words of the UN, the new “primary destination” for cocaine. The drug, once the preserve of rich European partygoers, has gone mainstream, with street prices falling by an average of 18 per cent between 2014 and 2024 while the products sold became 44 per cent purer, according to the EU’s drugs agency.

…

As authorities have stepped up interceptions at major ports, traffickers have kept ahead through sophisticated drop-offs at sea, enabled by encrypted communications, powerful speedboats, unmanned submersibles and GPS spoofing, which involves vessels faking their locations.

“You always have to stay up-to-date, because there’s always a new modus operandi,” says Jürgen Ebner, acting chief of Europol, the EU’s law enforcement agency. He warns of a “waterbed effect” — when authorities come down hard in one area it can just push problems somewhere else.

Exactly."

The Endangered Species Act Reduces Housing

From Alex Tabarrok.

"Max Tabarrok’s paper on the Endangered Species Act and housing (WP) has just been published in the Journal of Public Economics! It’s a clever paper: Max observed that the moment an animal is put on the endangered species list, developers face enhanced compliance costs and liability risk. But what’s important for an empirical economist is that this increased regulation isn’t national–it binds just where the species lives. Thus, the ESA creates many natural experiments, places where it binds and nearby places where it doesn’t and the list changes over time–there were 82 listings in 1970 and nearly 1500 today–and there are even some de-listings which reduce regulation.

Here, for example, is a picture of the habitat (red) and control areas (blue) for when the Northern Long Eared Bat was put on the endangered species list.

 

The bottom left panel measures annual housing permits per 1000 1980 pop in treatment (red) versus control (blue) areas. The bottom right is the event study coefficients. After the bat was put on the endangered species list, the number of new housing permits declined in areas where bats might live relative to control areas.

Here is what happened when the Peregrine falcon was delisted. Before the delisting, housing permits were lower in regions (red) where the falcon had habitat compared to controls areas but after the delisting the treatment areas caught up to the control areas.

 

Overall:

…this paper provides evidence that an additional endangered species listing reduces annual housing permit flows by 0.5 permits per thousand 1980 residents, about 10% of the average place’s permit flow. Accounting for spillovers and diminishing costs, my estimates suggest the aggregate effect of the ESA has been to reduce the national housing stock by…roughly 6.3 million missing units over 1980–2024, about 4% of the 2025 housing stock.

Now, you might say, ok this shows the ESA has costs. What about the benefits of the ESA? It’s hard to measure the benefits, of course, or even know if the ESA is effective. But Max shows using satellite data that there are quite a few places where the ESA binds on infill development.

…at the intensive margin of housing production, new developments are often replacing existing buildings or are filling in space in a highly developed area that could not host endangered species even if no new construction took place. On the intensive margin, the tradeoff with species protection does not bind, and may even be positive sum as it substitutes for less dense greenfield development. Therefore, whether and how much the ESA constrains development on the extensive vs intensive margin is relevant to the tradeoffs we face between housing production and species protection, and thus is relevant to the aggregate welfare effects of the law.

In this section I extend the main empirical specification of the paper to satellite data on land use from the National Land Cover Database (NLCD) (Multi-Resolution Land Characteristics Consortium, 2025) and to heterogeneity within the Building Permits Survey to assess where the effects of the Endangered Species Act are accruing.

The NLCD is a set of satellite images of the United States compiled and pre-classified by the U.S. Geological Survey. They classify 30-square-meter pixels into one of fifteen land use groups, including four levels of development, three types of forest, and two types of wetland. The NLCD has annual files going back to 1985. I overlap these pixels with the map of permit-issuing places in the BPS using constant 2024 borders, and track the changes to pixels within each place over time. The hazard rate of extensive margin or greenfield development is measured by the flow of non-developed pixels (e.g., forests or wetlands) into any of the four levels of developed land use, divided by the total area of greenfield land use.

He concludes:

The most urbanized 15% of places are responsible for 90% of total permit flows, while the highest-value endangered species habitat is well outside these developed areas. The Endangered Species Act seems to restrict infill development in these dense areas as much as it restricts greenfield development in exurban sprawl (Table 9, Table 10, Table 11). Relaxing the legal mechanism of the Endangered Species Act in already developed areas may increase permit flows in dense, energy- and land-efficient cities in California and on the East Coast at the expense of sprawling suburbs in the Sun Belt, increasing both housing supply and endangered species habitat.

The Trump administration is trying to limit the ESA, multiple lawsuits have already been filed. Max’s paper is thus timely and it points to a fix that might satisfy housing proponents and environmentalists: relax the ESA’s bite on infill and redevelopment in already-built-up areas, where the housing-versus-habitat tradeoff barely binds, rather than across the board.

Addendum: Obviously, I am pleased as punch to see this paper in print. Max began writing the paper before graduate school–he has only just finished his first year. He was fortunate to have had lots of great advice along the way, most notably from a superb pre-doc he did at Dartmouth under the auspices of Heidi Williams."