Liberals’ carbon tax in big trouble after heating-oil blunder ignites into political firestorm

Opinion

Hey there, time traveller!
This article was published 31/10/2023 (679 days ago), so information in it may no longer be current.

The federal government’s carbon tax scheme is unravelling faster than a spool of thread in a textile factory. But it’s not solely because of the political circus that has engulfed the controversial levy over the past week.

The Liberal government’s policy of “putting a price on pollution” to reduce greenhouse gas emissions – a strategy that has yet to yield any tangible results — is on the brink of collapse after Ottawa decided last week to exempt heating oil from the tax for three years.

It was a catastrophic blunder that has pitted Eastern Canada, where many still use oil to heat their homes, against the West, where natural gas (still subject to the tax) is more commonly used.

Saskatchewan Premier Scott Moe poured fuel on the fire Monday when he declared that his province would stop collecting the carbon tax on behalf of the federal government unless Ottawa extends the tax holiday to natural gas by Jan. 1. More provinces could follow.

Meanwhile, Opposition Conservatives in Ottawa are giddy with excitement over the latest fiasco and are using it to repeat their demands that the Liberals “axe the tax” entirely.

Ottawa’s carbon tax has turned into a political tire fire virtually overnight and will not be easily extinguished. However, it’s facing a deeper problem: there’s no evidence the tax is doing what it’s supposed to.

The stated objective of the carbon tax is to use price signals to discourage people from burning fossil fuels. As the price for fuel increases, the more likely people will be to conserve and/or switch to alternative and more environmentally sustainable energy and transportation options. That’s the theory, anyway. It’s a problematic one because the demand for fuel is somewhat inelastic: moderate price increases appear to have little, if any, effect on consumption.

After more than four years of putting a price on pollution, the federal government has yet to demonstrate that its plan is working. It has presented no evidence, including in its Greenhouse Gas Pollution Pricing Act annual reports (published since 2019), that the carbon tax is reducing emissions.

Canadians are paying more at the pump and on their home heating bills and most are receiving commensurate rebates in the form of “climate action incentive payments.” However, there has been little, if any, information from Ottawa to show that the scheme is accomplishing its stated goal.

According to Canada’s annual national inventory reports on greenhouse gas sources, emissions from transport increased from 2005 to 2019. From 2019 to 2020 they decreased somewhat (owing largely to the COVID-19 pandemic when people drove and travelled less) but increased again in 2021. Overall, Canada’s GHGs were up 1.8 per cent in 2021 from 2020, according to the latest available data.

That doesn’t tell us much. Perhaps emissions from transport would have been higher without a carbon tax. Perhaps not. The federal government would have to conduct a counterfactual analysis and present its findings to Canadians to show whether the carbon tax is having the desired effect or not. They have not done so.

Maybe it’s too early to draw conclusions. Proponents of Canada’s carbon tax scheme say it will take time for the levy to change consumption behaviour. Maybe.

The carbon tax is set to rise each year by $15 per tonne to $170 per tonne by 2030 (about 37 cents per litre of gasoline). It’s currently at $65 per tonne.

If it’s a question of time, it’s incumbent upon federal officials — the ones charging the tax and making the claim it will reduce greenhouse gas emissions — to provide projections of when they expect it to reduce emissions. Surely they’ve done their homework and have economic modelling.

The question of how high the tax would have to rise to make a significant dent in consumption has never been satisfactorily answered. It’s doubtful even a 37-cent-per-litre tax would meaningfully alter people’s consumption habits. There have been pricing swings at the pump larger than that with little visible change in demand. If not $170 per tonne, then how much?

The federal government should also explain how a higher carbon tax would impact the economy, including its effect on small and medium-sized businesses (which do not receive climate action incentive payments) and the impact it would have on inflation.

Those considerations should be weighed against other strategies to reduce greenhouse gas emissions, including through regulation and technological advances. The federal Liberals have not provided Canadians with that analysis.

They may not get a chance to after the latest brouhaha in Ottawa over the carbon tax, including the statement over the weekend by Liberal Rural Economic Development Minister Gudie Hutchings. The minister was asked if other parts of Canada might expect similar levels of carbon tax relief granted to the Atlantic provinces, to which she replied: “Perhaps they need to elect more Liberals in the Prairies so that we can have that conversation, as well.”

That sounded very much like the death knell for the carbon tax. It’s hard to imagine how the Liberals could recover from this.

tom.brodbeck@freepress.mb.ca