Pembina Institute

Too much rhetoric, not enough facts in the carbon tax debate

Clare Demerse

Published in iPolitics (Sept. 21, 2012)*

By Clare Demerse, Director, Federal Policy

Maybe this summer’s record-setting droughts triggered something in Prime Minister Stephen Harper’s mind. Or maybe his communications team just didn’t want the hassle of creating a new line of attack when they could pull one ready-made out of their files. But for whatever reason, climate policy is back on the agenda in Ottawa with a vengeance: the opening of Parliament featured a line-up of Conservative MPs slamming NDP leader Thomas Mulcair for his alleged support for a carbon tax.

In a move that recalls their 2008 attacks on then-Liberal leader Stéphane Dion, Conservative MPs have taken every opportunity to accuse Mulcair and his party of supporting a new tax on the pollution that’s causing climate change, which the government labels as “job-killing” and, to quote the Prime Minister, a “dumb” idea.

For its part, the NDP points out that they don’t support such a tax. Instead, the party campaigned on a cap-and-trade system for greenhouse gas pollution — the same kind of system that the Conservative government supported as recently as 2010.

With the rhetorical battle showing no sign of easing up, it’s a good time to throw a few facts about capping, taxing and regulating “carbon,” or greenhouse gas pollution, into the mix.

The basic reason to put a price on carbon is simple: when something costs more, people buy less of it, whether we’re talking about cigarettes or fossil fuels. Increasing the price of pollution encourages people and companies to choose cleaner alternatives, and it gives less-polluting, newer technologies (which tend to be more costly at the outset) a fighting chance against the conventional, dirtier options.

The carbon tax mudslinging we’re witnessing in Parliament is about how to set that price. Governments can choose to set a legal cap on the total pollution that can be released via a cap-and-trade system, or adopt a direct tax on pollution.

British Columbia has been among North America’s carbon pricing leaders, adopting a modest carbon tax back in 2008. Their results should stop fear mongering in its tracks: B.C.’s consumption of the fuels covered by the tax is dropping (while the rest of Canada’s is growing); pollution is decreasing; and while B.C.’s per capita GDP has dipped slightly since 2008, the rest of Canada’s has shown a bigger drop. Best of all for any political observers, the government that adopted the tax was re-elected.

You could spend countless hours debating which variety of carbon pricing is best — and we have. The bottom line is that either approach can work well if it’s designed properly, mainly by minimizing loopholes and being ambitious about reducing pollution.

Whichever flavour you prefer, the difficult reality is that any worthwhile carbon pricing proposal will draw some political fire, because the policy does increase the cost of everyday goods like gasoline and electricity. That’s not an accident: it’s exactly that “price signal” that prompts consumers and companies to start making cleaner choices. So while Mr. Mulcair is right that the federal NDP prefer a cap to a tax, the effect on a consumer would be very similar from either system. Fortunately, good policy design can protect people and companies from cost increases they can’t afford.

The Conservatives clearly believe that a good offense is the best defense. But the flurry of talking points should not obscure another unfortunate reality about curbing pollution: the Conservatives’ preferred approach could cost Canada’s economy more than either cap-and-trade or carbon taxes.

Rather than pricing carbon — the approach favoured by the Canadian Council of Chief Executives and a who’s who of Canadian industry players — the Harper government now says it will cut greenhouse gas pollution through sector-by-sector regulations on Canada’s industries.

If you polled economists, you’d find virtual unanimity that regulations are less efficient, and thus cost more, than a carbon price. That’s because they’re less flexible, making changes by decree rather than tapping into companies’ ingenuity by giving them a goal to meet in whatever way works best for them.

But regulations only cost more than a price on carbon if you’re using them to reach the same environmental goal. If the government doesn’t care about whether its regulations actually cut pollution, it could propose toothless new rules that barely make a dent in business as usual. In that case, the regulations would cost little more than the salaries of the officials who write them. Of course, environmentally speaking, they also wouldn’t be worth the paper they’re printed on.

So far, Ottawa has put precious few new regulations on the books. The federal government’s most recent announcement — a set of regulations to cut pollution from coal-fired power plants — have been weakened to the point that they will now allow the oldest and dirtiest coal plants in Canada to run for up to half a century from the date they were commissioned without any limit on their greenhouse gas pollution.

While energy is perhaps even more of a minefield than other policy questions, weighing risks and making tradeoffs is exactly what politicians are paid to do.

It’s tough to champion a policy like cap-and-trade or a carbon tax, and not just because of the Conservative spin machine. It takes courage to ask Canadians to accept potentially higher costs today in exchange for a better future for our children.

But it’s also risky, as the Harper government must know, to choose a less effective and more expensive tool to curb pollution when a better one is available — and when time is of the essence.

Clinging to the status quo carries its own set of risks, from the impacts of a changing climate to losing out on the jobs, new markets and innovation opportunities that the global clean energy transition offers.

We have real choices to make as a country about energy and tackling global warming. In making them, we can’t pretend that a carbon tax is the only option that carries a cost to Canadians — and repeating it over and over won’t change that.

So as Parliament’s fall session continues, the Conservative party might want to consider some better ways to show that they’re environmentalists than re-using and recycling those old carbon tax attack lines.


Clare Demerse is director of federal policy at the Pembina Institute, and the lead author of Reducing Pollution, Creating Jobs, a report on the economic impacts of climate polices.  


Copyright © The Pembina Institute. All rights reserved.