It’s clear we’re running out of options to prevent an environmental catastrophe. According to a very scary report from the UN climate change panel, if we don’t act now we face a worldwide disaster as early as 2040 that includes worsening food shortages, droughts, flooded coastal cities, more California-type wildfires, and a mass-die off of coral reefs.
But political leaders are still fighting over what—and how extensive—that action should be. Debate over a carbon tax will play a major role in the 2019 federal election. Unsurprisingly, what the Liberals have called a “vital step to grow our economy and protect our environment” and the Conservatives call a “tax on everything” is not just controversial, it’s also complicated.
The federal carbon tax will begin in Ontario, New Brunswick, Saskatchewan, and Manitoba on April 1 because those provinces did not create their own plans in time for the federal deadline. For Nunavut and Yukon, which asked to use the federal system, it will begin on July 1. (The rest of the country already have carbon pricing in place.) Here, we explain how—and if!—carbon taxes work.
What is a carbon tax?
Carbon taxes put a direct price on emissions. Generally, this means that greenhouse gas emitters—usually fuel producers and distributors—pay a designated amount per each tonne of carbon dioxide emitted from burning carbon-based fuels. In order to motivate emitters to decrease emissions, the price usually goes up slowly over time so households and industries have time to adjust and adopt less carbon-heavy practices.
What’s the difference between a carbon tax and cap-and-trade?
Cap-and-trade is indirect carbon pricing. The government sets a limit (the cap) on carbon emissions by companies, who are then given emissions permits. If a company’s emissions fall below their permits, they are allowed to sell excess permits (the trade) to a company that has exceeded theirs. Experts say that both methods—carbon taxes and cap-and-trade—are effective if done well.
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How effective is carbon pricing at fighting climate change?
Scientists and economists agree that when the government puts a price on carbon, it raises the incentive for industries to innovate and find ways to lower their emissions. In an interview with CBC, Nobel Prize-winning economist Paul Romer said, “If you just commit to a tax on the usage of fuels that directly or indirectly release greenhouse gases, and then you make that tax increase steadily in the future … people will see that there’s a big profit to be made from figuring out ways to supply energy where they can do it without incurring the tax.” And, it can change the behaviour of individual consumers, too. Sumeet Gulati, a professor in the department of Food and Resource Economics at the University of British Columbia, who has studied the effectiveness of carbon taxes, said that even a low carbon tax leads to people adopting everyday measures such as driving less and opting for more fuel-efficient cars.
The numbers seem to agree too—British Columbia saw net emissions fall by 4.7 per cent over eight years after putting in a carbon tax, and for an example outside of Canada, Sweden has seen emissions fall by 26 per cent since implementing a carbon tax in 1991 alongside an existing energy tax. By comparison, Saskatchewan—which does not have a carbon tax—saw heavy increases in greenhouse gas emissions from 1990-2015.
Of course, other factors also play a role in decreasing emissions, and it would be inaccurate to give all the props to a carbon tax. Ontario and New Brunswick, for example, saw major drops in greenhouse gas emissions when they closed coal-fired electricity generation plants and mills respectively.
Canada is still an estimated 90 million tonnes of annual carbon-dioxide emissions shy of its stated goal to cut emissions to 70 per cent of what they were in 2005 by 2030. The United Nations Intergovernmental Panel on Climate Change, however, suggests Canada’s commitment is more than 100 million tonnes shy of what is needed—the equivalent of what 28 million passenger cars emit in a year.
Where does Canada’s federal government stand on a carbon tax?
In order to meet Canada’s commitment under the recent Paris Agreement emissions goals (in which countries agreed to work towards limiting a global temperature increase to 1.5 degrees Celsius), the federal government’s Pan-Canadian Framework on Clean Growth and Climate Change has established a carbon tax benchmark, which calls for carbon prices to begin at a minimum of $10 per tonne this year, and increase by $10 per year until it hits $50 per tonne in 2022. Under the plan, provinces that don’t come up with their own carbon pricing plan by 2019 will have a federally mandated carbon tax—or “backstop”—imposed on them. (Although the backstop is most certainly a tax, the Liberals prefer to call it by the more politically neutral term “carbon pricing.”)
Critics have pointed out that the proposed Canadian tax is too low to make a substantial difference, let alone save the environment from the disaster predicted by the UN’s Intergovernmental Panel On Climate Change. However, Sara Hastings-Simon, a senior fellow at the Pembina Institute, an energy think tank, says that we are in the middle of an “energy transition” and that we need to look at short term, midterm, and long term solutions. In order to make the tax politically palatable and assist carbon heavy industries with the change, it can help to start the tax low.
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“Is it enough to meet our 1.5 commitment at the Paris Agreement? Probably not, but this comprehensive federal carbon tax is something no one else is doing,” Gulati says. “I don’t see any value of that argument saying there is no point if the tax is too low. You have to simply start.”
What does a carbon tax mean for Canadian consumers?
Consumers won’t have to pay a tax directly (corporations and businesses do), but they will face higher prices for goods and services from industries that emit higher greenhouse gases. For example, gas will see a price increase of 4.4 cents per litre in April 2019, a surcharge that is projected to go up to 11 cents a litre by April 2022 as the carbon tax gradually increases. The federal carbon tax backstop policy will help counter this cost with a general annual rebate to Canadian households based on the average expenses of a province and divided evenly across the board. The average rural household in Saskatchewan, who drive more than urban counterparts, for example, would receive a projected $598 rebate – regardless of how much they spend or emit (although it should be noted that gas and diesel for farming are eligible for exemption from carbon tax fuel charges). By comparison, the average household in Ontario would receive $300.
What provinces already have their own carbon tax?
British Columbia introduced the first North American broad-based carbon tax back in 2008. As with any new tax, the carbon tax there faced opposition. In 2009, 47 per cent of British Columbians said they opposed the tax, despite it being internationally lauded. Emissions in the province are now priced at $35 per tonne, and will increase each year by $5 until the cost reaches $50 per tonne in 2021. To offset the cost of taxes for individuals, the government offers a climate action tax credit with GST/HST returns. The B.C. government recently released its CleanBC plan, which includes industrial incentives and a Clean Industry Fund to help industries stay competitive as they try to innovate.
Alberta implemented a tax on all types of fuel in 2017 with plans to increase the price per tonne by $10 annually. The province has some of the lowest taxes in the country already, and the provincial government offers support for small businesses and farmers in light of the climate plan.
Quebec (where voters tend to support government action against climate change) has enforced a cap-and-trade program since 2013 and has seen a relatively steady decline in emissions, while Ontario’s cap-and-trade program was cancelled by premier Doug Ford after only seven months when his party ousted Kathleen Wynne’s Liberal government (who had only just signed the cap-and-trade deal back in September 2017).
So how do political leaders who oppose the carbon tax plan to fight climate change?
Conservative leader Andrew Scheer and premiers Scott Moe of Saskatchewan, Brian Pallister of Manitoba, and Doug Ford of Ontario are all against the federal carbon tax—although they say they do have plans to combat carbon emissions. Scheer has said he doesn’t think carbon taxes “have a direct effect” on curbing emissions, and that his party’s environmental plan is forthcoming. Pallister told Maclean’s that his plan “focuses on cleaner water, conservation of nature, economic opportunity and effective steps to reduce emissions.” Canada’s Ecofiscal Commission points out that minimum requirements (for example, fuel efficiency for businesses) and regulations, such as B.C.’s renewable fuel standard, are often more politically palatable, but more expensive than direct carbon pricing.
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Moe’s government has called the federal carbon tax unconstitutional, and its court challenge to the Saskatchewan Court of Appeal began on February 13 and 14. Ford and New Brunswick premier Blaine Higgs have joined the challenge, as well as Alberta’s opposition leader Jason Kenney. Last December, Higgs announced that New Brunswick will pursue its own separate court challenge as well. In Ontario, Ford has also defended spending millions of taxpayer dollars on ads against the federal carbon tax.
Additionally, the New Brunswick government says it has plans to develop its own emissions regulations. The Ontario government released their environment plan on November 29, 2018. To address carbon emissions, the government will create The Ontario Carbon Trust—rather than put a carbon tax on emitters, it will use public funds to encourage private companies to go green.
But federal environment and climate change minister Catherine McKenna was unconvinced by Ontario’s plan. “Now because Ontario is being less ambitious—at a time when we need to be more ambitious—that means the whole country needs to make up and has to reduce more emissions,” she told CBC.
How will this play out in the 2019 federal election?
The Liberals, which proposed the Pan-Canadian Framework in the first place, support a tax. The Green Party is also very in favour of a revenue-neutral carbon tax but Elizabeth May has called it insufficient to meet the Paris Agreement targets. Both her party and Jagmeet Singh of the NDP have criticized Prime Minister Justin Trudeau’s carbon tax leadership, for “giving out subsidies and tax breaks to the biggest polluters,” according to Singh.
Here, these concerns stem from a federal plan in which big greenhouse gas emitters—such as power plants and refineries—would get subsidies to help lower their carbon tax costs. (Without those subsidies, the logic goes, big emitters would decamp for countries with less environmental oversight).
For the Conservatives, Scheer has raised the same concerns about big polluters as Singh. And he told Chatelaine earlier this year that he doesn’t “believe in” a carbon tax. “Those advocating for it are abandoning their responsibility to take meaningful action. Our comprehensive plan will include a number of principles, and we will be unveiling our environmental approach in the near future,” Scheer said. In the four provinces where the backstop is about to begin, the Conservatives have controversial plans to mass-text potential voters messages against the federal plan.
As for Maxime Bernier and his People’s Party of Canada, he has made it abundantly clear that he does not endorse a carbon tax. In a CTV interview he went even further, saying, “My party will do nothing on climate change because [the] environment is a shared jurisdiction. Provinces have programs for that and so I’ll let provinces decide what they want to do to fight climate change.”
The federal election is scheduled for this fall, and polls have found that voters see climate change as their third biggest concern after Donald Trump and the health care system. Extreme weather also ranks as a top concern. Moving forward, voters will have to be careful and look past the partisan noise for policies that will actually make a difference.
With files from the Canadian Press