With the political battle over carbon taxes heating up, conservative politicians are criticizing not only the economic impact of the levies but their effectiveness in reducing greenhouse-gas emissions.
Federal Environment Minister Catherine McKenna insists that carbon pricing is the most economically efficient way to reduce emissions.
Her view is supported by international institutions such as the Organization for Economic Co-operation and Development and the World Bank, by domestic think tanks such as the EcoFiscal Commission and by Canadian energy companies such as Suncor Energy Inc. and Enbridge Inc.
However, in announcing last Friday that he would kill Ontario’s cap-and-trade plan, premier-designate Doug Ford asserted the often-stated line from opponents that a carbon price “does nothing for the environment” while hurting consumers and businesses.
On Tuesday, the Ontario government shut down the popular Green Energy Fund, which used revenues from cap-and-trade to subsidize homeowners’ and businesses’ improvements in energy efficiency with new windows or insulation, and investments in solar panels and heat pumps. The program had to be temporarily shut down last year because it was oversubscribed.
In a report last week, the right-of-centre Montreal Economic Institute (MEI) backed Mr. Ford’s contention. The two economists concluded that under cap-and-trade programs adopted by Ontario and Quebec, prices would have to be far higher than governments currently plan in order to reduce energy consumption and emissions.
“Either they’re not going to hit the targets, or to hit the targets, they’ll have to raise the carbon price to such a degree that you’re going to chase away businesses to other jurisdictions,” one of the study’s co-authors, Calgary economist Mark Milke, said Tuesday.
Under cap-and-trade, governments set a limit on emissions and then sell allowances for the right to spew carbon dioxide into the atmosphere.
Alberta and British Columbia have adopted a carbon tax, similar to the one planned by the federal Liberal government. On Jan. 1, Ottawa will impose a levy in provinces that do not have their own pricing system, whether a tax or cap-and-trade.
Based on a rate of $18.65 per tonne of CO2, the carbon prices in Ontario and Quebec currently add about 4.3 cents to a litre of gasoline. The federal tax will be introduced at $20 per tonne in January, rising to $50 - or about 11 cents a litre - in 2022.
The Montreal Economic Institute authors point to studies that suggest consumers are unlikely to use significantly less gasoline given the modest impact on pump prices.
But a senior analyst at the EcoFiscal Commission insisted pricing is an effective tool to change behaviour.
“There may be limited options – though not no options - to respond to a price in the very short term, but there are definitely more over time as businesses and consumers replace the stock of technologies that they have,” said Dale Beugin, executive director at Ecofiscal Commission, a group of prominent economists who advocate pricing on pollution.
“A carbon price can influence what choices you make - whether you buy a more efficient furnace, or whether you get around to upgrading your attic with more insulation, or whether you buy an electric vehicle,” he said.
Studies of B.C.’s carbon tax - which was introduced in 2008 - have concluded that emissions are up to 15 per cent lower in the province than they would have been without the levy, Mr. Beugin noted.
Ottawa has produced its own analysis that concluded that carbon pricing systems in Alberta, B.C., Ontario and Quebec, plus the imposition of a federal tax elsewhere, would reduce emissions by 80 to 90 megatonnes by 2022. That would be the equivalent of taking 23 million cars off the road.
Governments at both levels are relying not only on carbon taxes but on regulations and subsidies to hit emission targets. However, Ms. McKenna argues the carbon tax is the cornerstone of the federal approach.
“Any credible climate plan needs to have a price on pollution,” she said in a telephone interview from Berlin, where she was meeting international colleagues.
While critics contend the higher energy costs will chase away investment, Ms. McKenna insists carbon pricing accelerates investment in innovation and clean technology that will be critical to Canada’s economic future.
“Carbon pricing is part of competitiveness.”