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Can Canada have an effective climate action policy without a carbon tax?

Carbon taxes may be unsustainable tools as political and price realities begin to sink in — and they aren’t the only policy option at politicians’ disposal.
Barry Penner, chair of the Energy Futures Initiative, at a waste-to-energy plant in Copenhagen this month

Eight years ago, Mark Jaccard, a sustainable energy economist at Simon Fraser University, co-authored a paper that warned of the “severe political consequences” that would be faced by a federal government that chose to rely exclusively or primarily on carbon taxes to fuel a climate action strategy.

To achieve federal emissions targets largely on its own, a national carbon tax would need to start at $30 per tonne of carbon dioxide emissions and increase to $200 per tonne by 2030, argued the 2016 paper titled, Is Win-Win Possible?

“It is highly unlikely that our political leaders will implement such a price, given the severe political consequences,” the paper said.

But Prime Minister Justin Trudeau’s government did implement a national carbon tax as a main policy tool. And now, it is facing the political consequences of that choice.

Recent polling suggests that, while British Columbians support climate action policies, that support decreases the more that those policies cost them.

According to Research Co., 70 per cent of British Columbians say they support the federal government’s net-zero ambitions, but that level of support drops to just 49 per cent if average energy costs increase by 20 per cent. Support for federal net-zero policies drops to just 40 per cent if energy costs were to rise by 30 per cent.

The federal carbon tax, which started in 2019 at $20 per tonne of emissions, now sits at a minimum of $80 per tonne. It is scheduled to rise by more than 160 per cent to reach $170 per tonne by 2030.

On April 1, the carbon tax in B.C. jumped from $65 per tonne of carbon dioxide to $80 per tonne, bringing the carbon tax paid on gasoline to about $0.18 per litre.

Now that carbon tax increases are getting costly enough to have their intended effect, which is to deter people from using fossil fuels, inflation-fatigued Canadians are starting to revolt against them.

And as elections loom in B.C. in October, and next year in Ottawa, governing parties will need to re-evaluate carbon taxes or risk losing to politicians who are vowing to scrap them.

Federal Conservative leader Pierre Poilievre has made axing the federal carbon tax a main election promise, and in B.C., John Rustad, leader of the Conservative Party of BC, has likewise pledged to cancel B.C.’s carbon tax.

Kevin Falcon, meanwhile, said a BC United government would eliminate the provincial motor fuel tax on gasoline, and exempt home-heating fuels (natural gas and heating oil) from the carbon tax.

“In a democratic system like Canada, politicians can’t get too far ahead of their voters on issues,” said Barry Penner, chair of the Energy Futures Institute, a new B.C. energy policy think-tank. “And if the voters decide that various forms of climate action are too expensive or not working properly, it poses a real threat that climate action policies will be unwound.”

Penner served as B.C.’s environment minister when the Gordon Campbell BC Liberal government brought in B.C.’s climate action plan, which included a historic, economy-wide, revenue-neutral carbon tax. It was originally set to rise by $5 per tonne until it hit $30 in 2012.

Today, B.C.’s carbon tax is accompanied by other climate-focused policies that carry their own costs—like the current B.C. government’s legislated zero-emissions vehicle mandate, which will require auto dealers to have electric or hydrogen fuel-cell cars and trucks account for 90 per cent of total light-duty vehicle sales by 2030, and 100 per cent by 2035.

An effective carbon tax should not require other “heavy-handed” policies, Penner said.

“If you were standing behind the carbon tax as a market mechanism, you would think that consumers will make that decision on their own without the heavy hand of government restricting their choices,” Penner said.

“The government’s now doing both—they’re ratcheting up the carbon tax and limiting your choice and prescribing what technology you must choose. I think, taken together, that helps contribute to a backlash from people who don’t like the government telling them what to do.

“I think governments have to be willing to adjust their timelines and possibly their policies because public support for climate action waxes and wanes.”

In an open letter to the federal government, hundreds of Canadian economists and academics defended Canada’s carbon tax and urged the Trudeau government to stick to its guns. The letter counters the argument that carbon taxes have not been effective in reducing greenhouse gas (GHG) emissions.

“Since the federal carbon pricing took effect in 2019, Canada’s GHG emissions have fallen by almost eight per cent, although other policies were at work,” the letter states. Emissions must fall by between 32 per cent and 37 per cent by 2030.

The letter points to a Canadian Climate Institute (CIC) study that shows federal and provincial carbon pricing is expected to account for nearly half of Canada’s emissions reductions. Interestingly, though, most of the heavy lifting comes from industrial carbon pricing for heavy industry, and not from consumer carbon taxes on fuels.

Should the carbon tax be axed in Canada, it would still be possible to have effective climate action policies, Jaccard said, although he added that politicians vowing to “axe the tax” need to state what other policies they would implement.

Apart from saying that he would support nuclear power and carbon capture and storage, Poilievre hasn’t spelled out what other climate action policies a Conservative government might maintain or implement.

“If a politician promises to kill carbon taxes but won’t tell you what they’ll do instead, you should assume they are not climate-sincere,” Jaccard told BIV. “For example, innovation does not replace carbon pricing. Innovation is an outcome of policy, not a policy.”

When B.C. first introduced a carbon tax in 2008, it was revenue neutral, but revenue neutrality was eventually abandoned. Penner said he thinks there might be more support for carbon taxes if people saw other taxes—such as income taxes—go down by levels commensurate with carbon tax increases.

“I think it was a strategic error to diverge from revenue neutrality,” Jaccard said.

Ken Peacock, chief economist at the Business Council of British Columbia (BCBC), agrees.

“Definitely part of the problem is that they abandoned revenue neutrality,” he said. “If they were truly interested in reducing emissions, while continuing to foster investment and make business viable, they would provide some offsetting tax relief.”

It is worth noting that, if governments decide to rethink some of their climate action policies, one option might be to at least maintain carbon pricing for industry—the so-called large-emitter trading system. Alberta has had a variation of this in place since 2007. In B.C., it’s called an output-based pricing system.

In a recent paper, the CCI wrote that, of all the major climate action tools adopted by the federal government, large-emitter trading systems are the single most effective in terms of avoiding GHG emissions.

By 2030, the large-emitter trading system would account for 23 per cent to 39 per cent of avoided emissions from all federal policies implemented to date, the CCI report estimates. That compares to just eight per cent to nine per cent for the “fuel charge” paid by consumers purchasing gasoline and diesel.

The second-largest emissions reduction would come from an emissions cap on oil and gas production. Methane reduction regulations would account for the third-largest reduction.

“We know that the current package is working, and of the current package, large-emitter trading systems are by far and away the single most impactful policy,” said Ross Linden-Fraser, senior researcher for CCI.

“That makes that policy really important. If governments want to change the policies they are relying on, they’re going to need to come up with alternatives that fill any gap created by missing policies.”

Jaccard’s paper eight years ago suggested that Canada could implement effective climate action policies without having to rely on carbon taxes as a policy cornerstone.

“We must have at least one of these compulsory policies to achieve emissions effectiveness. But it does not have to be carbon pricing,” the paper argued.

Examples of compulsory federal policies include apartial zero-emission vehicle standard, a low-carbon fuel standard and sector-specific performance standards for industry that set declining percentage emissions intensities.

(The Energy Futures Initiative that Penner chaired has recently been changed to the Energy Futures Institute to avoid confusion with the American Energy Futures Initiative.)

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