Time was when a proposal to more than quintuple the carbon tax would have been kind of a big deal in Conservative circles. Yet the Trudeau government offered up precisely that last week – an increase in the national carbon price from $30 a tonne at present to $170 by 2030, and the official opposition response was … well, not crickets, but not a lot more than that. Maybe scattered birdsong.
Leader Erin O’Toole complained in a tweet that “Trudeau is still barreling ahead with his carbon tax increase.” Natural resources critic Greg McLean was silent. Finance critic Pierre Poilievre, a noted base-stirrer, confined himself to a single “axe the tax” petition. As for more official statements, the party’s environment and climate change critic, Dan Albas, seemed mostly concerned that the government had “failed to properly consult provinces” on the plan.
And while he repeated the party’s ritual pledge to scrap “Trudeau’s Carbon Tax,” Mr. Albas also included a line drawn from Mr. O’Toole’s platform in this year’s leadership race: “If provinces want to use market mechanisms, other forms of carbon pricing, or regulatory measures, that is up to them. The federal government will be there to support them.”
Well now. As things stand, six of the 10 provinces are using some form of carbon pricing: Quebec and British Columbia, whose systems predate federal involvement, plus Nova Scotia, Newfoundland, PEI and, most recently, New Brunswick, which dropped its opposition after last year’s federal election.
Manitoba has gone back and forth, first suggesting it would impose the tax, then renouncing it, then introducing a “made-in-Manitoba” version of the tax that does not meet the federal definition. Still, it’s not hard to imagine Manitoba signing onto the federal plan after the Supreme Court rules, as it is expected to do, that the federal government has the constitutional authority to require it.
In fact, it’s not that hard to imagine Ontario, Saskatchewan and even Alberta joining them, once the court challenge is out of the way. At that point, they will be facing a fait accompli. One way or another, their citizens will have to pay the tax. The only question is whether it will be a federal or a provincial one – whether the revenues go to Ottawa, to be distributed by the feds, or are collected and spent by provincial governments.
As Ken Boessenkool, a former adviser to Stephen Harper who has lately taken to urging Conservatives to get onside with the tax, has pointed out, “that may solve the problem” for Mr. O’Toole. There will be no more federal tax to axe. “Trudeau’s Carbon Tax” will have been replaced by the Ford-Pallister-Moe-Kenney carbon tax. And, per Mr. O’Toole, “the federal government will be there to support them.”
Does that mean Mr. O’Toole has to surrender? Swallow his pride, admit Mr. Trudeau was right and change the subject? Not a bit. Carbon pricing was originally a conservative idea – it was progressives who, swallowing their pride, adopted it as their own – and it can be a conservative idea again. There are lots of ways in which the Liberal plan falls short, and an O’Toole government could “support” provincial moves to improve it.
It’s critically important that they do. Conservatives have wasted vast amounts of time and energy opposing a carbon tax on grounds of the harm it would allegedly do the economy. Yet studies consistently show the cost to economic growth is negligible: at most a twentieth of a percentage point of GDP a year, even at $170 a tonne.
On the other hand, the cost of inferior policies – subsidies and regulations – is substantial. The Ecofiscal Commission, a group of experts in environmental economics, modelled three alternative approaches in a report last year. The first, much like the current Liberal plan, relied mostly on carbon pricing – the commission suggested a $210-a-tonne levy would be required – with offsetting rebates to households and “output-based pricing” allowances for large emitters to alleviate competitiveness concerns.
Under such a plan, the report projected economic growth over the next decade at an average of 1.37 per cent a year, after inflation. By contrast, under the two alternatives, composed of varying mixes of regulations and subsidies, growth was projected at just 1.16 per cent and 0.81 per cent annually. By 2030, per-capita GDP under the first plan would be as much as 6 per cent higher – $3,300 – than under the alternatives.
But the commission also included a fourth alternative: carbon pricing, but done right. Rather than use up substantially all of the revenues collected reimbursing every single household for the cost of the tax, this approach would limit the rebates to the poorest 40 per cent of households, instead devoting the bulk of the revenues to cutting personal and corporate income taxes – by as much as seven percentage points off the current combined federal-provincial rate, depending on the province.
Coupled with a more stringent approach to output-based allowances – the commission suggests taxing emissions starting at 80 per cent of the industry average, falling to 70 per cent by 2030, compared with the current 90 per cent – the report estimated the resulting average annual growth rate at 1.61 per cent. That’s nearly twice as fast as under the most costly regulatory-subsidy alternative.
And that’s not all. The commission’s estimates assume all existing subsidies and regulations remain in place. A Conservative carbon tax might instead be used to replace most of these – those that cost more per tonne of emissions reduced than the carbon pricing alternative. Competitiveness concerns, likewise, might better be addressed by border tariffs, correcting for differences in national carbon prices, than by output-based allocations. Under such an approach, the economy might grow even faster than under the best of the Ecofiscal alternatives.
We do little harm to the economy by pricing carbon, relative to a do-nothing alternative that in any case is not available to us. But we can do a great deal of harm by pursuing other, costlier approaches. Carbon pricing, in one form or another, is on the way. Conservatives can either let it roll over them, or get out in front and steer it in a more conservative direction.
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Andrew Coyne