Canada’s airlines are warning Ottawa’s planned carbon tax will increase airfares, reduce flights on marginal domestic routes and drive passengers to nearby American airports.
The airlines' lobby group, the National Airlines Council of Canada, will send letters Friday to federal ministers, warning the levy will cause serious harm to the country’s carriers if it is fully imposed on them. It is urging the government to delay implementation of any levy on domestic flights until Ottawa can reach agreement with provinces and territories on a national approach that caps greenhouse-gas emissions but allows carriers to purchase credits to meet their targets.
Prime Minister Justin Trudeau plans to introduce a carbon tax on Jan. 1 in those provinces that do not have their own levy or do not meet Ottawa’s standards for one. Airlines will have to pay the tax on flights within provinces that are covered under the federal system, while the Liberal government works with other provinces and territories to forge a national approach on interprovincial flights.
“It’s a mess; there’s no other way to describe it,” council president Massimo Bergamini said in an interview. "We’re seeing political expediency driving decision-making now at both the federal and provincial levels. And it’s compounding the effect on our industry.”
The Liberal government is set to release in the coming weeks details of how its carbon tax will apply to individuals and businesses, including how various industries will be treated as they push for special breaks to address competitiveness concerns.
A spokeswoman for Environment Minister Catherine McKenna would not comment on the airlines' concerns, saying only that details of the tax plan will soon be released.
The airlines are exempted from carbon levies for interprovincial flights under all existing provincial plans, including Alberta’s carbon tax or Quebec’s cap-and-trade system. However, carriers are bracing for the imposition of the federal tax in provinces where there had been a levy – or one was planned – that has been cancelled. That includes Ontario, where Premier Doug Ford ended cap-and-trade, and Manitoba, which cancelled its planned carbon tax. In Alberta, United Conservative Party Leader Jason Kenney has vowed to end that province’s carbon tax should he win power in an election scheduled for next spring.
Mr. Ford’s decision to cancel cap-and-trade will result in higher carbon levies if Ottawa’s plan survives a court challenge by Ontario and Saskatchewan. The federal levy – which kicks in at $20 a tonne in January – will rise to $50 in 2022. Under cap-and-trade, Ontario’s carbon price was forecast to be about $23 a tonne in 2022 owing to the availability of cheaper credits from California.
On the average flight within Ontario, the federal carbon tax would add $11.43 for every round-trip ticket when the levy rises to $50 a tonne in 2022, or $45.70 for a family of four, the council said. If the tax is applied to interprovincial flights, it would add $30.48 to a round-trip, non-stop flight between Toronto and Vancouver.
Mr. Bergamini said the tax will not only drive up airfares, but could force airlines to cut service on routes that are already losing money or are only marginally profitable. It would also encourage travellers from cities close to the border to find cheaper U.S. flights. A $50-per-tonne levy on carbon emissions would cost the industry roughly $1-billion in 2022, according to a study done for the council. The airline council represents Air Canada, WestJet, Air Transat and Jazz.
The industry is pushing for a federal system similar to a cap-and-trade approach that would allow companies to purchase credits from other industries that can reduce their GHG emissions more cheaply. The international airline industry recently adopted a global cap-and-trade system that aims to hold emissions at 2020 levels through the purchase of credits.
Fuel represents either the largest or second largest cost for airlines and Mr. Bergamini said his members have been investing heavily in more fuel-efficient aircraft. Between 2005 and 2016, the industry cuts its fuel for each kilometre flown on domestic flights by 15.6 per cent.
But it is not clear airlines deserve any special treatment because of competitiveness concerns, said Dale Beugin, executive director at the Ecofiscal Commission, a think tank that works on pricing pollution. “I think it is quite likely they will just be able to pass along their costs to consumers,” Mr. Beugin said. “So yes, flights might cost more but I don’t see them losing market share to international competitors.”