Canadians are right to be skeptical about the federal government’s carbon-pricing plan.
At the G20 summit in Hamburg in early July, Prime Minister Justin Trudeau took a leading role in promoting a climate change agreement that would reaffirm the Paris targets. Nineteen members of the G20 signed on, with the United States declining.
Several Canadian provinces have implemented climate change action plans containing several key components: subsidies to renewable power; household, business and vehicle efficiency programs; and, of course, a carbon pricing program.
After adopting the Paris climate commitment, the federal government announced it would establish a “backstop” price for greenhouse gas emissions starting at $10 a tonne in 2018, rising to $50 a tonne in 2022. Provinces that don’t adopt equivalent policies will have that new federal tax imposed on them.
However, a new poll by the Angus Reid Institute suggests that the more people learn about carbon pricing, the less enamoured they are of such schemes, particularly at the federal level. According to the poll, at least half the population (outside Quebec) oppose the federal tax plan.
A large swath of those polled in Alberta (68 per cent) and Saskatchewan (71 per cent) want their leaders to oppose the federal plan.
And 55 per cent of Canadians who were polled don’t think Canada should move forward with its carbon-pricing plan if it could impact our competitiveness.
A recent Fraser Institute study showed the provinces are implementing carbon pricing in ways that fundamentally violate the three key principles of efficient and economically benign carbon pricing, which are:
- the tax must displace existing regulations, not be atop them;
- the tax must be fully rebated to the public as reductions in other distortionary taxes such as income and corporate taxes;
- and the tax revenues must not be used to distort energy systems by supporting one form of production over another.
No province meets all three of these principles. Most don’t meet any.
Consider Ontario’s cap-and-trade system. The province estimated it would bring in $2 billion in revenue per year. According to the Ontario auditor general, out of the $8 billion to be collected in four years, $1.32 billion is earmarked to help with residential and business electricity bills. The rest will be spent on the usual governmental preferences, like transit, subsidies to renewable energy and dubious efficiency programs.
Alberta’s new carbon tax of $30 per tonne is expected to generate almost $3.95.4 billion from 2017 to 2020. Part of that (28 per cent) will be given to low- and middle-income Albertans, ostensibly to ease the pain of higher power bills, and the indirect impact of driving up costs of other goods and services in Alberta. The rest will be spent on government projects.
And then there’s Quebec, which has a cap-and-trade system that has brought in $330 million as of 2016 and is expected to bring in $2.5 billion by 2020 (and perhaps more, if Quebec matches the escalating national price floor established by Ottawa). Where does the revenue go? Free permits are given to emitters, with the remaining revenue to be spent on “programs to fight climate change.”
Another Fraser Institute study verified that in the B.C. carbon tax’s early years, it was truly revenue neutral. Personal and corporate taxes were reduced, and additional tax reductions were introduced to ensure revenue neutrality. But by 2014-2015, only five years into the tax system, the government had taken to shaky bookkeeping to preserve the appearance, but not the reality, of revenue neutrality. And from year two of the tax, various tax credits diverted revenues away from general public tax relief.
Despite promises to the contrary, provinces with climate action plans and carbon pricing have actually increased both regulation and tinkering with their energy systems.
Trudeau may have doubled down on his Paris pledge and postured as the anti-Donald Trump climate warrior at the G20. But there’s growing evidence that Canadians don’t like carbon taxes and are realizing they’re not the efficient and economically benign eco-tax sold by politicians.
Instead, carbon taxes are quickly turning into funding mechanisms for expanded government meddling in Canada’s energy economy.
Kenneth P. Green is senior director of the Centre for Natural Resource Studies at the Fraser Institute.
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