A column by Bruce Uzelman
The consumer carbon tax has been much in the news, driven there by both the Conservatives and the Liberals. The two parties may as well be speaking two different languages. Their positions on the topic are completely opposed. Who is telling the truth? Well, it’s complicated.
The Liberals and Conservatives both use a 2023 report by the Parliamentary Budget Office (PBO) to support their positions. The PBO examines the fiscal impact of the tax on households (Carbon Tax + GST - Rebates), and the economic impact (the loss in employment and investment income). The analysis is for 2030-31 when the tax reaches $170 per ton of emissions. It is now $80 per ton.
The PBO writes, “Considering only the fiscal impact, we estimate that most households will see a net gain, receiving more in rebates from Climate Action Incentive payments than the total amount they pay in the federal fuel charge (directly and indirectly) and related GST….”
The PBO also concludes, “Taking into consideration both fiscal and economic impacts, we estimate that most households will see a net loss, paying more in the federal fuel charge and GST, as well as receiving less in incomes, compared to the Climate Action Incentive payments they receive….” Of course, the Liberals quote the first statement, the Conservatives reference the second.
So, each party is telling its own selective truth. The Liberals are misleading us by not revealing the economic costs. This reflects their overall strategy to obscure the real costs of carbon action, while hyping both the rebates and the benefits of new clean investment. Everything comes at a price. Taking no carbon actions also comes with costs related to climate change.
The Conservatives ignore the rebates, and do not recognize that the economic costs associated with the carbon tax will be incurred with any climate action, not just the carbon tax. They pretend “technology” will magically solve the climate issues. Technology costs money too.
Huge private sector investment is required in knowledge, facilities and equipment to curtail GHG (greenhouse gas) emissions. Government action is needed to drive the investment, either financial incentives like the U.S. government favours, or a mix of regulation, incentives and taxation that the Liberals favour. Government policy should focus on the measures that have the least cost.
The Liberal government has relied too heavily on regulation. It has introduced the Clean Fuel Regulations and has planned an Emissions Cap, both directed at the oil and gas industry. Such policies, on top of the current industrial carbon tax, will put Canadian resource industries at an international disadvantage, and will heavily cost Canadians, fiscally and economically.
Likewise, industrial and consumer incentives are inordinately expensive, as is evident with the $30 billion or so pledged by Ottawa and Ontario to attract just a handful of automobile battery plants.
Over 300 economists recently signed a letter defending the carbon tax. The letter implies the tax significantly contributed to emissions falling 8% since 2019. That is doubtful for several reasons, including a very low initial carbon tax rate. Nonetheless, the economists go on to validate the tax.
It’s “basic economics,” says the letter, when prices increase, people use less. This argument, based on the economic law of demand, is sound. The letter rightly asserts that the tax lets each consumer reduce carbon in the best ways, so is less inflexible and less costly than regulation.
It argues the carbon tax has little impact on overall inflation, “most advanced countries – whether or not they have a carbon price – experienced very similar inflation.” (The Bank of Canada stated that if the tax was removed, it would cause a one-time drop of 0.6 points in the inflation rate.)
Carbon pricing works by raising the price of carbon intensive choices, the letter correctly states, and the rebate does not undermine this goal. “Those that reduce emissions the most will come out further ahead; they will pay less in carbon fees but still get the full rebate.”
The economists massage a few inconvenient facts, but their argument is largely sound. Some critics complain that, with the Liberals’ other climate policies in place, the carbon tax imposes too large a cost. That is correct, but it’s not a good reason to eliminate the tax, the least costly policy.
Current and proposed climate regulations and government climate incentives impose huge fiscal and economic costs on Canada and Canadians. To reduce the costs, the government should retain the consumer and industrial carbon taxes, and diminish the use of the other measures.
Moderately increasing the industrial carbon tax across all industrial sectors, and dropping the unfair, proposed emissions cap on the petroleum industry, the associated industrial cap and trade system and the administrative expense of it all, would be a win-win. It would further encourage the reduction of all industrial GHG emissions, and preserve a large and productive resource industry.
Bruce Uzelman, based in Kelowna, holds interests in British Columbia history as wells as current political and economic issues.
Bruce had a career in small business, primarily restaurant and retail. He holds a Bachelor of Arts, Advanced from the University of Saskatchewan, with Majors in Political Science and Economics.
Contact: urban.general@outlook.com
