LOST in all the attention surrounding the federal budget was the release of Canada’s 2021 National Inventory Report, outlining greenhouse gas (GHG) emissions for 2019. Despite little fanfare, the report is seminal, providing quantitative evidence on several environmental policy questions still dogging Canada.
Most obvious is that Canada is failing in attempts to meet its Paris Agreement target for 2030, a commitment everyone, irrespective of political perspective, understands and agrees is important. Canada’s emissions in 2019, at 730 million tonnes, are little different from in 2005. We have made little progress and face a daunting task to reduce emissions by at least 220 million tonnes in less than 10 years. On this, we have collectively dropped the ball.
Second is more specific, concerning the Liberal government’s vaunted carbon tax. Emission results for 2019, the first year applied, clearly show the carbon tax did not work. Canada’s emissions went up, not down.
It is important to go back to federal documents from 2018 justifying the tax. The first reason was apparent success in British Columbia, a questionable claim given that province’s upward-trending emissions. The second reason was the purported ability to deliver decisive and large emission reductions over a short time frame. Indeed, by 2022, the carbon tax was touted to reduce 80 to 90 million tonnes, a projection that now looks unrealistic.
MBA students this past winter session were able to estimate the cost of reductions for the tax as applied to two major fossil fuels, on-road gasoline and on-road diesel, across four provinces where levied: Manitoba; New Brunswick; Ontario; and Saskatchewan. These consumption data show that for 2019, carbon taxes paid from the four provinces on these two fossil fuels totalled just over $1.03 billion — a large number. At the same time, emission reductions due to reduced consumption of the same fuels totalled less than 171,000 tonnes, a relatively small number.
The resulting net cost for reductions thus translates to more than $6,000 per tonne, astonishingly higher than the $20 per tonne "price signal." This calculation provides context, given that too frequently carbon taxation is touted as a "low-cost" option, whereas results show otherwise.
This is not surprising. Carbon taxation is not bogus, but neither is it magic. Success depends critically on consumers responding to the tax. Regrettably overlooked is that over past decades, consumer sensitivity to fuel-price changes has dropped precipitously. Both diesel and natural gas today exhibit behaviours more like "necessities," with consumption staying roughly level irrespective of price.
MBA students further identified some obvious improvements. We could use collected taxes to mitigate damages or fund reductions. As we all know, however, the federal Liberals opted for politically expedient rebates. Those rebates, however, are not monitored to confirm if any was spent on reductions, with the obvious implication from results being that it did not happen.
More than $2.6 billion in carbon taxes were collected during the first year alone. Even if levels were just maintained, over the next decade this could directly fund improvements that would contribute significant reductions. Such direct expenditures further would be dramatically larger than proposed environmental spending in the recent budget, while not adding debt.
A third concern is confirmation the carbon tax was not fairly handled. In 2018, we were assured most households in Manitoba would gain back more, with average household costs of $232 versus average rebates of $334 quoted. Yet actual data shows average household costs in 2019 were $386, while rebates were only $314. Federal ministers should at least stop making ridiculous claims that are obviously not true.
Fourth, and below the radar, is that three provinces continue to lead on percentage emission reductions relative to 2005: New Brunswick (38), Nova Scotia (30) and Ontario (21). A key policy in all three is decarbonization of the electrical grid. This has shown demonstrated success, with further potential, suggesting importance of the "East-West" grid for Canada to better use its own clean electricity.
This approach, however, has been led by provinces, with little federal involvement. It should be a priority.
One final point is cautionary: emissions under Prime Minister Justin Trudeau have now gone up three years in a row, and on average are virtually identical to those under former prime minister Stephen Harper. There is a growing and glaring "public confidence" problem on climate policies, with ever more grandiose and unrealistic promises being not matched by bottom line results.
Instead of just pretending, we need practical actions to move forward and reduce emissions.
Robert Parsons teaches sustainability economics and quantitative methods in the I.H. Asper School of Business, University of Manitoba.