This tax is not like the others.
On Friday, the Trudeau government presented its redoubled plan to meet Canada’s long-term climate goals. Its centrepiece is a steadily rising carbon tax.
The current tax is $30 a tonne of carbon, which works out to roughly seven cents of tax on a litre of gasoline. It had been set to rise to $50 a tonne in 2022, which critics rightly pointed out was likely not high enough to do much to quell the appetite for fossil fuels.
The government is now pledging to push it to $170 a tonne by 2030 – nearly 40 cents a litre on gas.
Ottawa has long overpromised and underdelivered on climate change, whether led by Jean Chrétien, Stephen Harper or Justin Trudeau. Before Friday, Canada was going to fall well short of its Paris Agreement targets for 2030, but this new plan, if carried through, could change that.
Instead of relying on government micromanagement of the economy and business, the Liberals’ carbon plan is built around a clear and simple market lever.
Yes, there is lots of pocket change for politically popular green subsidies – dollars here for eco-friendly home renovations, dollars there for buyers of electric cars. Those details took up most of Friday’s announcement. It’s as if the Trudeau government was trying to bury its own lead.
The big news is that carbon pricing – a decade of annual increases, worth tens of billions of dollars a year – is now the government’s core environmental strategy. (That is, of course, as long as the Supreme Court of Canada rules in its pending decision that the power to levy such a tax is within the federal government’s constitutional purview.)
In the history of politics, promising to radically increase a tax on almost everyone has rarely been a winning idea. The Liberals may be taking a big risk. But this tax is like no other.
The plan is to return a lot of the money to taxpayers. That’s what the feds already do in provinces, such as Alberta and Ontario, that declined to impose their own carbon tax. By 2030, a family of four in Ontario can expect to receive $2,000 a year in refunds. The same family in Alberta could get $3,200.
The carbon tax leaves it to households and businesses to figure out how to best reduce their own emissions – and avoid the tax.
Take public transit? Own a fuel-efficient, or electric, car?
Millions of Canadians could end up getting back more in rebates than they fork over in carbon taxes.
This tax is also like no other because its goal is to change behaviour, not to raise revenues. The aim is for people to do such a good job of reducing emissions, and thereby avoiding the tax, that revenues eventually spiral to zero. The carbon tax’s goal is its own obsolescence.
To change people’s choices, the tax has to be high enough to matter. Today’s carbon tax of seven cents a litre on gas is not nothing, but it’s not much. In 2025, it will be 21 cents a litre, and 38 cents in 2030. That’s a way different story.
Conservatives of late have reviled the carbon tax. Opposition to it has become orthodoxy on the right – even though, as a market-based solution, it started life as a conservative idea.
Among economists, putting a price on carbon is generally seen as the most efficient way to push people and businesses to use less carbon. It works because, as anyone who has ever been shopping knows, prices matter.
In taking the 2030 climate goals seriously, and choosing carbon pricing to achieve them, Ottawa is making the right move, rather than the easy move. Critics will have to offer an alternative, and explain why it is better than what’s now on the table.
The urgency to act is real.
Five years ago, the Paris Agreement aimed to keep global warming to 1.5 degrees.
Two years ago, the United Nations said that the goal of 1.5 degrees “would require rapid, far-reaching and unprecedented changes in all aspects of society.”
Yet just last week the UN, in its “emissions gap” report, warned the world is on track for a calamitous three degrees or more of climate heating by the end of the century.
The Trudeau government’s new plan has ambition that is up to the scale of the challenge. The necessity of a serious carbon tax has long been clear. It is now poised to become a reality.
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