ANALYSIS: Behind Guilbeault’s ‘Social Cost of Carbon’ Speech

Environment Minister Steven Guilbeault speaks during the Canada 2020 Net-Zero Leadership Summit in Ottawa on April 19, 2023. (The Canadian Press/Sean Kilpatrick)

News Analysis

When the Parliamentary Budget Officer issued a report a few weeks ago saying the carbon tax is a “net loss” to most Canadian households, Environment Minister Steven Guilbeault said the report didn’t account for the costs of climate change itself, also tweeting that “the costs of inaction on climate change far outweigh the costs of taking action.”

On April 19, Guilbeault upped the ante on the issue of carbon emissions, saying that the government will use a “new tool” called the “social cost of carbon” to fight climate change and that the cost of Canada’s emissions could be five times higher than previously thought.

But is there a significance to the timing of this announcement?

Ross McKitrick, an environmental economics professor at the University of Guelph, says the Liberal government wants to use the social cost of carbon “as a justification in Canada to just keep increasing the carbon tax at an even faster rate, and ... to justify a new policy like a more restrictive clean fuel standard, for instance.”

“What they really should say is, ‘We constructed a brand new model that no one has ever seen before, and it’s spit out this completely different social cost of carbon estimate that flies in the face of all the research that’s been done up to this moment,’” he said in an interview.

A ‘New Tool,’ but Not a New Term

Guilbeault told attendees at the Net-Zero Leadership Summit in Ottawa on April 19 that the government used updated scientific and economic models to determine how much climate change costs Canadians. The social cost of carbon measures the financial impact every tonne of greenhouse gas emissions has on things like food production, human health, energy systems, disaster repair bills, and property values.

While a previous analysis estimated that by 2020 the cost of carbon would be about $54 a tonne in Canada, the updated model said that the figure was actually closer to $247, and that this number is now at $261 in 2023 and is expected to reach $294 by 2030.

“Every tonne of carbon we reduce this year saves society as a whole $261, and we are talking in terms of cutting megatonnes—millions of tonnes,” Guilbeault said at the summit.

Despite having announced that the social cost of carbon was a “new tool,” he said on Twitter that it is not a new term but an idea that originally came from the U.S. Environmental Protection Agency and the U.S. National Academies of Sciences, Engineering, and Medicine.

Under the Liberal government’s carbon tax plan, after rising to $65 per tonne starting April 1 this year, the tax will gradually go up by $15 every year until 2030, by which time it will cost $170 per tonne.

When Parliamentary Budget Officer (PBO) Yves Giroux announced the release of his report, “A Distributional Analysis of the Federal Fuel Charge Under the 2030 Emissions Reduction Plan,” he said most households will pay more in fuel charges and GST—as well as receive slightly lower incomes—than they will receive in Climate Action Incentive payments

Guilbeault criticized the report, saying that the PBO himself says the report “does not attempt to account for the economic and environmental costs of climate change,” and that it also “doesn’t account for the economic opportunities of driving clean tech innovation either.”

‘Highly Speculative Assumptions’

McKitrick said the models Canada used to calculate the social cost of carbon could be flawed, as it’s possible to obtain a certain number you’re looking for if “you just feed a certain set of assumptions into a computer.”

The Dynamic Integrated Climate-Economy (DICE) model was one of several models used to calculate the social cost of carbon. But some have criticized it for being too sensitive to initial assumptions, with the think tank Heritage Foundation calling it “flawed beyond use for policy-making.”

“I guarantee DICE and the other models for the social cost of carbon will have highly speculative assumptions, probably based on a few marginal outlier studies that give you a high carbon,” McKitrick said.

“But this is not something that’s playing out in the standard, peer-reviewed literature and economics on the subject. This is being done by bureaucrats in a Biden administration agency.”

McKitrick also pointed out that Canada is responsible for less than 2 percent of global carbon emissions, while China and India account for nearly 40 percent. He said the Liberals’ climate change policies will move industrial activity out of Canada and into those countries that use dirtier energy sources like coal.

“This doesn’t typically get talked about in policy circles. We end up not only bearing the cost of a lot of overly expensive policy, but it’s completely counterproductive for reducing global emissions because all we do is export a lot of industrial activity to more polluting countries,” he said.

The Epoch Times reached out to Environment and Climate Change Canada but didn’t hear back.

Social Cost of Carbon ‘Not a New Creation’

Anthony Heyes, an economics professor at the University of Ottawa and Canada’s research chair in environmental economics, says that the social cost of carbon is not a new creation. It “has been completely common parlance in every circle in which carbon reduction is discussed for at least 25 years. It’s completely standard apparatus and terminology in government and academia,” he said.

Heyes said the timing of Guilbeault’s speech suggests the Liberal government is signalling that “they intend to get tough on carbon,” despite the fact that historically Canada’s “rhetoric has been a bit stronger than actually the action.”

“I think the content of his speech is precisely saying that we’ve been using a social cost of carbon. [The carbon tax] is not driving the emissions reductions that we perhaps had hoped, and we’re going to be cranking it up,” he said.

“If the feeling is that the U.S. is going to go towards a number that’s much higher than what they’re using at the moment, then I think Canada would want to do something pretty close to that.”

Assumptions

Jack Mintz, president’s fellow of the School of Public Policy at the University of Calgary, says the timing of Guilbeault’s announcement could have been because the government wants to “justify its immensely costly carbon reduction policies.”

He criticized the social cost of carbon model for using a 2 percent near-term Ramsey discount rate in its calculations. Using an “extraordinarily low number” in its calculations assumes there will be little risk to the economy, he said, while pointing out that previous social cost of carbon models have used a 3 percent rate.

“So to increase the social cost of carbon ... it’s quite surprising and could actually push up the costs quite a bit,” Mintz said.