Outside of rooting for the home team in a Canada-U.S. hockey match, it’s hard getting Canadians to agree on much these days.
But there has been a bipartisan pile-on over Ottawa’s move to give the Loblaw supermarket chain – part of the multibillion-dollar George Weston food empire – $12-million to buy new energy efficient refrigerators.
Never mind that the money represents a small outlay from Ottawa’s $2-billion Low Carbon Economy Fund.
From tree huggers to climate-change deniers, the subsidy has struck a nerve on social media. NDP leader Jagmeet Singh questioned why the government would give handouts to “rich corporations” that can’t seem to pay many of their employees a living wage. Conservative MP Michelle Rempel contrasted Loblaw’s windfall to the plight of a small Manitoba grocery-store owner who can’t afford to replace a broken fridge.
Many people pointed out that Loblaw is particularly undeserving, given its involvement in a long-running bread price-fixing scheme and last year’s court finding that it owes the feds nearly $400-million in taxes from an offshore banking subsidiary.
Behind all the outrage, Canadians may be missing some important lessons about how best to curb carbon emissions.
There is nothing inherently wrong about giving money to Loblaw, whose chairman Galen Weston is among the richest Canadians. Mr. Weston’s wealth is largely irrelevant.
The problem is that it may not be the best way to encourage climate-friendly behaviour.
“Subsidies have a general problem: You may be paying a lot of money to get people to do things they would do anyway,” says McGill University economist Christopher Ragan, chairman of Canada’s Ecofiscal Commission.
As a result, subsidies are a very expensive way to curb greenhouse gas emissions, compared with putting a price on carbon, which the federal government is also doing.
“A higher price would encourage Loblaw to swap out its refrigerators for more efficient ones,” Mr. Ragan explained. “That’s how a carbon tax works. It encourages people to use energy more efficiently, no matter what.”
Loblaw must replace its refrigeration equipment every few years anyway. The prospect of a lower electricity bill is a strong driver to use the most efficient technology available. And that signal grows more powerful as the price of energy rises.
The downside of any subsidy – to consumers or businesses – is that the money may be wasted. It’s very difficult for governments to determine exactly how much of a financial incentive is needed to change people’s behaviour. The tipping point may be different for Loblaw than for the owner of a small grocery store.
The same flaw is inherent in other “green” subsidies, such as the large rebates offered by some provinces on luxury electric vehicles. Most of the eligible models are beyond what average Canadians can afford. Rich Uncle Pennybags doesn’t need our collective help to buy that Tesla Roadster he was going to get anyway.
The optics of giving money to large, profitable companies isn’t good, but it can be a useful tool in the government’s broader “carrot-and-stick” plan to reduce emissions, argues Isabelle Turcotte, national policy director at the Pembina Institute. She says subsidies can also provide intangible benefits, such as creating a new market in Canada for low-emission refrigeration technology.
“Loblaw is such a powerful first purchaser,” Ms. Turcotte says.
Another way to curb emissions is through regulation. But by simply capping emissions, companies may have little incentive to innovate and to do better than the rules require.
Shifting away from coal – the most carbon-intensive fuel – should be the top priority. And pricing discourages consumption of the most carbon-intensive energy sources on a sliding scale – from coal to oil, and from oil to natural gas, and eventually from fossil fuels to renewables.
Ottawa, however, seems content with a scatter-gun approach to saving the planet.
“We need to take action across the board,” Environment Minister Catherine McKenna insisted this week as she defended giving money to the grocery chain. “Everyone has to be reducing their emissions.”
That may be true. But giving money to companies such as Loblaw could prove to be a costly – and unpopular – way to get there.
The predicament for the government is that carbon pricing, while highly effective, could prove to be even less popular.