Improving carbon tax possible


I had thoughtful responses to my Think Tank article in the Free Press prior to the election (Carbon-tax ambitions reduced to pure misdirection, Oct. 18), but with one important question: why did I just criticize carbon taxes, without providing positive recommendations?

As in business, there is always a bottom line. In this case, it’s reducing Canada’s emissions 30 per cent by 2030 under the Paris Agreement, but with even more aggressive actions recently advocated ("Ottawa urged to chart clear climate course," Nov. 2). Canadians face a harsh task, and belief alone will not get us there.

Unfortunately, "making polluters pay" has become a political mantra for climate activists. Carbon taxation is not bogus, but at the same time not magic. Inadequacy of the Liberal carbon tax is well documented, initially by the Pan-Canadian Working Group on Carbon Pricing Mechanisms, reiterated by the parliamentary budget officer. It is legitimate for people to express concerns about climate, and demand urgent action, except no one should then expect the current tax to perform miracles.

This is due to several reasons. First is the low magnitude, making the tax impact inconsequential.

Second is the form and application, as a broad-based levy applied to all consumers who use all designated fossil fuels. Effectiveness in reducing consumption, and thus emissions, depends critically on aggregate consumer behaviour, and we know full well that consumers have become unresponsive. This again is no surprise. Canada has had ample broad-based taxes on fossil fuels for a long time, with few effects on consumption.

All carbon-pricing systems, however, are not created equal. In its recent platform, the Conservative party proposed that all large emitters, those over 40,000 tonnes, would have to make stipulated annual research investments per tonne to reduce emissions. Semantics aside, government-mandated expenditure is ultimately still a tax by any other name.

This move was largely ignored, but has potential to be much more effective. First, only a targeted group of facilities is involved, a few thousand but representing more than 40 per cent of Canada’s emissions. Second, facilities are given a strong direct incentive to quickly bring down their own emissions.

A generic example is fertilizer, an industry focused in the West because of farming. Circumstances vary, but these typically produce excess carbon dioxide that could be used but, with no economical applications, is often vented. Changing economic conditions makes alternative uses more attractive.

Under the above plan, elevated costs still could be simply passed on to end consumers, but with unit impacts on the latter relatively small, as seen with the broad-based Liberal tax. The Liberal’s current output-based system for large emitters, by contrast, only imposes taxes on emissions over stated caps. This ends up effectively maintaining the status quo rather than promoting change.

In any event, there is a need to protect Canadian industries from imports, so-called "trade exposure." The Green party uniquely proposed to ban outright all foreign oil. Such a move could go awry in terms of abrogating trade deals, but it is certainly legitimate for all foreign oil and other energy intensive products coming into Canada to be charged taxes, and not get a free pass, as happens today.

Renewable fuels can help too. Manitoba for some time has been a leader, recently announcing an increase of renewables in gasoline to 10 per cent, and diesel to five per cent. Canada could follow directly from Manitoba’s example to increase national renewable content levels, likely achievable within only a few years, and reduce annual emissions via this measure alone by upwards of seven million tonnes annually.

As announced in Manitoba, making efficiency improvements for heavy-duty freight transport trucks is also important.

Further guidance is provided from public National Inventory Report data. One common factor where provinces have been successful is reducing coal use. This is neither easy nor painless, especially looking at Ontario.

Lastly, transitioning transportation to electricity is a good idea where the grid is clean. Electric cars can certainly contribute, but remain pricey and increasingly upscale-oriented. Electrified public transit is thus most important, but a variety of constraints remain.

In a recent national report, I noted a lack of consistent and accessible funding support from the federal government, in particular compared to the U.S., where cities have been transitioning to clean buses faster. Improved and simpler funding from the federal government would definitely help.