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An oil sands facility is reflected in a tailings pond near Fort McMurray, Alberta. (Jeff McIntosh/The Canadian Press)
An oil sands facility is reflected in a tailings pond near Fort McMurray, Alberta. (Jeff McIntosh/The Canadian Press)

Globe editorial

Why Stephen Harper should love carbon taxes Add to ...

For years, Prime Minister Stephen Harper has been promising a greenhouse-gas policy to deal with emissions from Canada’s oil industry. On Tuesday, Mr. Harper abruptly revealed his sort-of plan. It can be summed up in two words: Do. Nothing.

“Under the current circumstances of the oil and gas sector,” said the PM in Question Period, “it would be crazy, it would be crazy economic policy, to do unilateral penalties on that sector. We’re clearly not going to do it.” In case anyone didn’t get it, he added: “With the current conditions in the oil and gas sector, this government will not consider unilateral regulation of that sector.”

So, there you go. That’s the policy. No background studies, no research papers, no long-term plan. After years of waiting, just a few throw-away lines. Move along folks, nothing to see.

For the better part of a decade, the Conservative government has declined to come up with a comprehensive greenhouse-gas (GHG) reduction strategy, and has instead favoured a so-called sector-by-sector approach. In theory, each sector of the economy will be ordered to achieve some level of reductions. Or, as is the case with the oil industry, more like not ordered.

The PM has been saying for some time that Canada wants a continental solution to oil and gas sector emissions – this country will do something, but only once it knows what the Americans are doing. Hence the repeated use of the word “unilateral” in Mr. Harper’s statement. And since the Americans, who may be on the verge of doing quite a lot on greenhouse-gas emissions overall, aren’t doing anything to specifically target their own oil industry, the PM has his cover. No unilateral regulation means no regulation. And “current conditions” – low oil prices – also means no regulation.

Mr. Harper is mostly wrong about all of this. But in one small but significant way, he’s right. The oil industry should not be the main target of a greenhouse-gas reduction strategy. It’s not the main source of GHGs. Taking oil out of the ground doesn’t produce a lot of greenhouse gases. The big GHG hit comes from using the oil – burning gasoline when you drive your car, for example. That’s where any policy to reduce greenhouse gases should look.

Environmentalists who focus on the oil sands are missing the big picture. Even if they shut the oil sands down, the impact on the world’s production of greenhouse gases would be very small.

Oil sands crude, as many environmentalists never tire of pointing out, is more carbon-intensive than most other forms of crude. They neglect to add this disclaimer: More polluting – but not by much. According to the U.S. Congressional Research Service, Canadian oil sands crude produces about 17 per cent more GHGs than the average barrel of U.S. crude when measured from “well to wheels.”

Yes, production from the oil sands generally requires more energy than conventional oil. That’s why it’s more polluting. But it’s not much more polluting because most of oil’s greenhouse-gas emissions come not from extraction, but from use. Burning gasoline, diesel, jet fuel and the like, regardless of source, is how most CO2 is generated.

And though Mr. Harper isn’t interested in hearing it, it is possible for Canada to significantly lower greenhouse-gas emissions without targeting the oil industry – or even imposing much in the way of new costs on the industry. One province is already doing it. And it works.

In 2008, British Columbia introduced a carbon tax. It is exceptionally simple: Carbon-based fuels are taxed according to the amount of GHGs they produce. For example, gasoline in BC is subject to a carbon tax of 6.67 cents a litre, and a litre of diesel carries a tax of 7.67 cents.

The carbon tax is also revenue neutral – when BC introduced carbon taxes, it lowered income taxes at the same time. As a result, middle-class British Columbians enjoy the country’s lowest income taxes.

The impact of BC’s carbon tax has been profound. Between 2008 and 2012, per-capita consumption of fuels subject to the tax fell 17 per cent in BC, while rising 1.5 per cent in the rest of Canada. At the same time, BC’s economy slightly outperformed the rest of the country. Raising taxes on something society wants less of – pollution – while lowering taxes on the things we want more of – jobs, income, savings – has had the expected effect. Pollution is down. The economy is not.

A carbon tax works because it’s Economics 101. It’s about putting a price on pollution, and leaving it up to millions of people and businesses to figure out how to reorient their behavior so as to minimize their costs. This is exactly what free marketers, conservatives and Conservatives should love. No giant bureaucracy is required; no mega-projects need to be subsidized; no allegedly green industries of some central planner’s fantasy must be lured to the province with multi-billion-dollar sweatheart deals. (Yes, we’re talking to you, Liberal government of Ontario.) It’s the most efficient way to cut pollution.

And what’s more, BC’s carbon tax doesn’t single out the province’s budding oil and gas industry. If Alberta or Ottawa got religion on carbon taxes, the result would be the same. Canada can have a greenhouse-gas policy that significantly reduces emissions while also having a healthy oil and gas industry, including oil sands. There’s no contradiction. Put a price on carbon and let the market figure it out.

If Ottawa simply photocopied the BC model, it would mean higher taxes on gasoline and other fuels, but lower taxes elsewhere. Ottawa could cut payroll taxes, such as Employment Insurance premiums, which are widely seen as a tax on jobs and a disincentive for companies to hire. It could cut income taxes, too.

Nobody should be holding their breath for the Harper government to come around. But some provinces might. Because with a carbon tax, a government could do the seemingly impossible. It could cut income taxes and other taxes, without cutting spending. It could lower pollution, without spending a cent. And it could satisfy environmentalists and conservatives – with the same policy. Aspiring politicians outside of BC, book yourself a plane ticket, and go visit your future.

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