Just Announced – A National Tax on Carbon

By Eric Rempel

So the Trudeau government has just done what any honourable government would need to do. It has placed a tax on carbon.

The Harper government had previously committed to reducing Greenhouse gas emissions to 30 per cent below 2005 levels by 2030. Although this is laudable, until yesterday little had been done in Ottawa to move towards this commitment. In the end, how one is going to achieve one's commitments is more important that the fact that one has made a commitment. If we as a nation are going to reduce our GHG emissions, we need to change the way we do things, and if we are to change the way we do things, we need incentives. The carbon tax will be that incentive.

In response to this announcement, Canadians should have two questions. The first is whether the tax is enough. Is it enough to change behaviour? The second question is how it will effect the economy. Will a carbon tax affect our well-being?

My own first response is that a tax which will increase the cost of gasoline $0.11 per litre is not going to have much effect on behaviour. Whether gasoline sells for $1.00 or $1.11 is not likely to determine whether I make that trip to Winnipeg, nor, for that matter whether I commit to a daily commute to Winnipeg or decide instead to relocate to a home closer to where I work.

On the other hand the data from BC is encouraging. BC inaugurated a carbon tax in 2008. The tax there began modestly, and increased to $30 per tonne in 2012 (which is less than the $50 tax announced by Mr. Trudeau). Even with that modest tax, the evidence is strong that GHG emissions in BC have not risen as much as they have in the rest of Canada – in other words, the BC carbon tax has affected behaviour in that province.

And what effect will this tax have on the economic performance of Canada, or the economic performance of any one of the provinces? Well Mr. Trudeau assures us that the tax is to be revenue neutral. This means that this is a tax shift, not an increase in taxes. So in 2022 we will be paying $0.11 more for gasoline at the pump because of this tax, but we will also be paying less somewhere else. Since the tax is to be collected by the provinces, it remains for the province to decide what it does with the tax revenue. BC now is collecting more than one billion dollars through its carbon tax. Personal and corporate taxes have been reduced there by that amount.

A carbon tax speaks one side of the ledger – it says what will be taxed, and we can speculate about how this tax will affect behaviour. We hope it does. But if the tax is in fact revenue neutral, there is also the other side of the ledger: reduced taxes, somewhere. We have not yet been told where taxes will be reduced, nevertheless logic tells us that that tax reduction will also affect behaviour.

Readers interested in this topic may find an Abacus poll done earlier this year of interest.