Trevor Tombe is an associate professor of economics at the University of Calgary and research fellow at the School of Public Policy.
Many Albertans might believe they’ll wake up on May 30 to a province free of carbon taxes. It’s an understandable perception: The United Conservative Party, after all, won the last election in no small part because of its opposition to such policies. A vow to “scrap the job-killing carbon tax” resonated with many, and Premier Jason Kenney has styled himself “Canada’s fiercest carbon-tax killer.”
There’s just one problem. In action, Mr. Kenney is no such assassin – and his government won’t scrap the tax, certainly not any time soon.
I’m not referring to the federal carbon tax here. That’s not yet in place in Alberta, and it faces an uncertain future at the ballot box in October. Instead, I’m referring to Alberta’s own provincial carbon tax, one that’s not being opposed, let alone nixed, by the UCP government.
Alberta will continue to levy a carbon tax on more emissions than any other province: specifically, a $30-a-tonne charge on nearly 140 million tonnes of greenhouse-gas emissions from the province’s largest emitters, including oil-sands projects, power generators, petrochemical facilities and more. This represents half of Alberta’s emissions and roughly one-fifth of Canada’s total.
In short, a carbon tax remains central to Alberta’s climate policy, even under the UCP. In a political environment lacking in nuance and rife with partisanship and hyperbolic rhetoric, this fact deserves attention.
Yes, Bill 1 – An Act to Repeal the Carbon Tax – removes the carbon tax from certain fuels used daily by many individuals and businesses. Gasoline consequently costs roughly 7 cents a litre less, and natural gas for home heating is cheaper by $1.51 a gigajoule.
Emissions from sources covered by the fuel levy, though, amount to a quarter of Alberta’s total. Instead of repealing “the” carbon tax, Bill 1 repealed “a” carbon tax and kept the other, larger one – effectively reducing Alberta’s carbon-tax coverage from three-quarters of emissions to roughly one-half.
The government won’t say this, of course. The carbon tax they favour goes by the name “compliance price” within the Carbon Competitiveness Incentive Regulation.
Theirs is not a full embrace, to be sure. They plan to make changes soon, having outlined details in their election platform.
First, they’ll change its name to the Technology Innovation and Emissions Reduction regime. Second, they’ll lower the tax rate from $30 to $20 a tonne and change how the revenue is spent – that is, the government won’t use the proceeds to lower other taxes, but will instead fund technology initiatives to the tune of nearly $600-million by 2020-21, and establish a marketing "war room.” While many economists, myself included, tend to favour lower income taxes over tech subsidies, others, such as the government, disagree. Fair enough.
Finally, the UCP carbon tax will change, but continue, subsidies for large emitters. This is important. Carbon taxes do raise costs, which in our open and trade-exposed economy raises legitimate competitiveness concerns. If firms simply shift operations elsewhere to avoid the carbon tax, then there is little environmental gain globally, yet real economic costs in Alberta. Using carbon-tax revenue to subsidize firm output, which buffers their costs, is one way to mitigate competitiveness concerns without undermining the incentive to lower emissions.
But instead of subsidizing, say, Cenovus’s barrels at the same rate as Nexen’s, as is currently done, the UCP is proposing larger subsidies for dirtier facilities and smaller subsidies for cleaner ones. This is unfortunate. It distorts private investment and business decisions, and undermines some of the incentive to lower emissions. It is better for policy to be neutral, and for governments to keep the playing field level.
Ultimately, carbon pricing remains a centrepiece of Alberta’s climate policy, and for good reason: It’s generally the most cost-effective way to lower emissions because it leaves decisions over how and whether to lower emissions to individuals and businesses, rather than to government. So carbon taxes, in one form or another, are here to stay.
The political challenges are clear, though. When voters see the costs of a policy – almost any policy – it loses popularity. But the UCP isn’t killing Alberta’s carbon tax – it’s only shrinking it, changing it, then hiding it from view.
There is no right or wrong way to price carbon, but there are important pros and cons to consider in terms of coverage, price level and the use of revenue. This is where the debate should be, where it needs to be – and where voters should demand it to be. Claiming victory over carbon pricing’s corpse, when the body is very much alive, is a disservice to all.