While carbon pricing has turned into a political debacle for the Liberals, a leading public policy and tax expert suggests the tax itself isn’t the main problem. He says Ottawa’s overall strategy to achieve emissions-reduction goals by introducing additional policies in essence shows a lack of belief in the effectiveness of the carbon tax.
“The carbon tax is going to be doomed in Canada because of the approach being used,” Jack Mintz, president’s fellow at the University of Calgary’s School of Public Policy, told The Epoch Times on Nov. 7.
Carrot Versus StickPrime Minister Justin Trudeau on Oct. 26 announced a three-year pause on the carbon tax for heating oil. Accompanying the pause on that federal fuel charge was a subsidy program for Atlantic Canadians to buy electric heat pumps.
Mr. Mintz called the move a “tremendous error on the part of the federal government” due to the additional politicization of the carbon tax. With another policy and exemption, it brings into question the levying of a carbon tax in the first place, he said.
Rating agency DBRS Morningstar said in a Nov. 6 commentary that the Liberals’ policy change on heating oil and the related discussion is a “continuation of a long-standing issue in Canada on the disproportionate impact of federal policies related to climate and the environment on predominantly resource-producing provinces.”
DBRS Morningstar added that Ottawa’s move is another sign of the continuing trend away from a universal carbon tax toward more industry-specific regulations like zero-emission vehicle targets, clean fuel regulations, and the oil and gas emissions cap.
Energy policies have historically relied on a “stick” approach—which includes carbon pricing—to enforce greenhouse gas emissions targets until more recently, noted Ravikanth Rai, senior vice-president of energy, utilities, and natural resources at DBRS Morningstar.
In a transcript of his comments for Credit Outlook Canada 2024, published Oct. 12, he said that “both Canada and Europe are now gravitating toward the carrot approach to entice businesses to build and maintain a presence outside the U.S.”
Mr. Rai said the United States has not taken the “stick” approach but adopted the “carrot” approach instead, which involves tax credits, incentives to use cleaner energy, and subsidies to promote green innovation.
Carbon Tax and InflationThe Bank of Canada is mandated to hold inflation at 2 percent, but the carbon tax is an extra complication.
Economics professor at the University of Calgary Trevor Tombe told The Epoch Times on Nov. 3 that if the central bank succeeds in its mandate, then “the carbon tax doesn’t actually increase price levels but just changes relative prices between items.”
“One could then say that the carbon tax increases interest rates and slows economic growth. That affects affordability, of course, but not through prices. Instead, the effect is through incomes and productivity,” he added.
Thus the carbon tax would force the BoC to hold a higher level of interest rates to keep inflation at 2 percent, all else equal.
Mr. Tombe estimates that the indirect effects would add 0.05 percentage points to inflation, for a total of 0.2 percentage points. But he cautions that this add-on can’t be known with certainty, unlike the 0.15 figure that is readily calculable.
Punitive Tax Hurts Atlantic CanadaThe federal carbon tax went up to $65 a tonne on April 1 and is slated to go up every year by $15 a tonne until 2030, when it will cost $170 per tonne.
“We have kind of an odd situation where we’re going in a direction completely different than the United States,” Mr. Mintz said, noting that the United States, aside from a few states, does not have a carbon tax.
In his FP oped, Mr. Mintz also noted that Canada’s average carbon tax or cap-and-trade price was US$40 per tonne in 2021, significantly higher than the US$4 average across 71 countries at the time.
Carbon taxes have been a hard sell in a lot of countries, Mr. Mintz said, adding that other countries grant a lot of exemptions and thus the effective carbon tax rate is low.
The four Atlantic provinces became subject to the federal carbon tax in July.