The carbon tax and fairness

Hey there, time traveller!
This article was published 18/09/2024 (405 days ago), so information in it may no longer be current.

Announcements hot off the presses by both Jagmeet Singh and B.C. Premier David Eby have confirmed a growing consensus across the political aisle that commodity-based carbon taxes represent a bad policy for Canada. As a longtime opponent of commodity-based carbon taxes, because of their demonstrated ineffectiveness and lack of fairness, I am beginning to feel quite vindicated. Again, it is too bad the federal Liberals do not appear to be listening.

In a recent op-ed in the Free Press (Unexpected results of the fuel tax holiday, Sept. 6), I discussed new information regarding the results of Manitoba’s fuel tax holiday, and unexpected implications suggesting inflationary impacts of the federal carbon tax have been underestimated. Beyond that, it is important for everyone to fully understand how unfair the federal carbon tax has been.

A more-detailed analysis earlier this year by MBA students Jonathan Alegria, Ramy Penner and Ryan Tan specifically examined carbon tax fairness. In particular they looked at the oft-cited claim by the prime minister and ministers that, “eight of 10 households are better off.”

For this, students examined data available for a single province, i.e., Manitoba, during one year, i.e., fiscal 2021-22. Spoiler alert — the results were not pretty.

Figures were publicly reported by the federal government for that year in the annual report on the Greenhouse Gas Pollution Pricing Act, with a variety of other sources available to allow data triangulation. Total proceeds were indicated as $369 million, with this value fully corroborated through other sources, further allowing a breakdown in terms of fuel types and applications, both direct and indirect. For example, direct costs associated with household vehicles using gasoline, translated to about $117 million, the largest single cost.

At the same time, two other problematic figures were presented by the federal government that appeared to come out of thin air, without any justification. The average rebate that year was suggested to be $705 per household. This value was unrealistically high, indeed mathematically impossible, given both the clearly outlined rebate formula and the nature of Manitoba’s population and household makeup. Based on official data from Census 2021, a more realistic average rebate could be estimated as no more than $614 per household.

The average cost of the carbon tax system was suggested to be only $462 per household. This value was unrealistically low, appearing to be based on a computer model rather than actual data.

The nature of pass-through down supply chains was fully acknowledged in design of the carbon tax, but appeared down-played or ignored in reporting of results. Diesel is a good example, entirely indirect, being used to transport goods and freight, which based on reasonable pass-through, translates to more than $73 million, the second largest cost faced by households. Combining calculated direct-costs and indirect-costs, a more realistic overall average could be estimated as $652 per household.

Instead of a purported average net rebate of $243 per household in Manitoba, analysis showed an average net cost of $38 per household.

This directly contradicts the Liberal claim. It was also found that whether or not a net benefit was obtained depended on the nature of household heating. An average electrically heated household obtained a small net positive rebate, although hardly a windfall. As outlined by Manitoba Hydro, an electrically heated household here typically costs upwards of three times more than natural gas heating on a yearly basis, even including the carbon tax.

Further, given Manitoba’s early, and quite visionary, implementation of the Furnace Regulation, the average efficiency of natural gas households here is roughly 90 per cent. We are already relatively efficient in our home energy use.

It would have been entirely proper for the federal Liberals to suggest that, “roughly four of 10 households in Manitoba receive a small net rebate on the carbon tax.” Such a realistic, but modest claim, however, would represent no catchy electioneering-style slogan.

The commodity-based carbon tax literally has no redeeming features. It is ineffective, not contributing in any demonstrable fashion to reducing emissions. It is unfair, especially to lower-income Canadians, as recently confirmed. It is highly controversial, being relied upon too much by the governing Liberals as a wedge issue to try creating political advantage. Their marquee policy instead has backfired, becoming a millstone around their necks.

For the benefit of all Canadians, it is time to simply eliminate the commodity-based carbon tax. This represents no loss.

Robert Parsons, PhD, MBA teaches mathematical methods, logistics, supply chains and sustainability economics at the I.H. Asper School of Business, University of Manitoba.