Prime Minister Stephen Harper reacts like a wind-up toy when you mention new taxes. They're all bad, he'll say automatically, nothing more than tax grabs designed to fatten the government at the expense of hard-working families. And so it is with carbon taxes. Mr. Harper would rather go to a Hamas clam bake than unleash such ugly, voracious beasts on Canadian industry and consumers. "The reason governments do carbon taxes is not so they can reduce emissions but so they can get more tax revenue in the government's pocket," he said in April.
As Mr. Harper digs himself deeper into his ideological hole, the world is passing him by. Carbon taxes in the developed world are going from the rare to the common. Most are working, in the sense that the countries that use them, such as Norway, are seeing their industrial carbon emissions fall without inflicting damage on their energy industry or overall economic growth. The taxes can even help the industry and spur growth. "The world is shifting to a low-carbon approach," says Stewart Elgie, a law and economics professor at the University of Ottawa, who is chairman of its Institute of the Environment. "Norway has seen it as an opportunity; Canada has seen it as a threat."
Mr. Harper is also apparently deaf to the cries of the energy industry itself. Steve Williams, chief executive officer of Canadian oil sands giant Suncor Energy, has endorsed the need for a "broad-based carbon price." Two months ago, in an open letter to Canada's premiers, the heads of several big-name companies, including Shell Canada, Loblaw, McKinsey & Co. and Desjardins Group, urged the use of carbon-pricing mechanisms to help make Canada a leader in clean technologies, a vast new market (three provinces already have carbon pricing).
But never mind. Mr. Harper is not listening, even though Canada has developed a reputation as a global sluggard on the environmental front. This week, a group co-chaired by former United Nations secretary-general Kofi Annan and former U.S. treasury secretary Robert Rubin said that Canada, along with coal-obsessed Australia, "appear to have withdrawn entirely from constructive international engagement on climate."
Pity that the Conservative tax-bashers were not at the presentation given by Kristin Halvorsen at the University of Ottawa on Wednesday. Ms. Halvorsen is Norway's former finance minister and is now director of the Centre for International Climate and Environmental Research – Oslo. Her message was that Norway's carbon-emissions tax, which is probably the highest in the world, at the equivalent of about $75 a tonne, has done a lot more good than harm. "It's been a success," she told The Globe and Mail, "to the point that the industry has not asked the government to reduce the tax, even though oil prices have fallen so much."
The Norway carbon tax was introduced in 1991 at about $50 a tonne and hit the industry hard. So it doubled its efforts to reduce its emissions, triggering innovations such as carbon capture and storage (CCS), which strips out most of the carbon dioxide from industrial emissions and injects it underground.
At Statoil's Sleipner CCS project in the North Sea, up to one million tonnes of CO2 a year have been stored since 1996. For Statoil, it makes sense to keep going even as other CCS projects elsewhere on the planet have been quietly dismantled. It costs Statoil about $17 a tonne to squirt the CO2 into the ground, meaning it saves about $58 a tonne (the difference between the CCS cost and the carbon tax). Statoil also stopped the burning off of excess natural gas from its wells (gas flaring, which is tracked by satellite imagery, is one of the top sources of global CO2 emissions).
You would think that Norway's high carbon tax would have whacked the country's offshore oil industry, which dominates the Norwegian economy. It hasn't, according to various economic studies on carbon pricing.
According to a recent study called Competitiveness Effects of Environmental Tax Reforms, which was submitted to the European Commission, countries that introduced carbon taxes, including Germany, Sweden and Denmark, saw their fuel demand fall by 4 per cent between 1994 and 2012. The reduction in planet-warming greenhouse gases fell even further than fuel demand, proving the efficiency of the taxes as an environmental cleanup tool.
And economic growth? The report found that, "as a general rule, the effects of [carbon taxes] will be positive on economic activity." That's because of revenue recycling. The amounts raised from the tax are used to lower taxes elsewhere, from income taxes to social security contributions by employers.
The British Columbia carbon tax has been a marvel. Since it was introduced in 2008, B.C.'s fuel use has dropped by 16 per cent while economic growth has kept pace with the rest of Canada. Alberta has a carbon tax of $15 a tonne, but that's nothing compared with the Norwegian tax.
The Alberta tax kicks in only when emissions exceed a regulated limit. In effect, the actual cost works out to less than 20 cents a barrel. Would the Alberta oil industry accept a higher price? It appears it would. Most Canadian oil companies already use a "shadow" carbon price to write their long-term budgets, assuming a higher price is coming. The current shadow price ranges from about $30 to $40 a tonne.
In the past, Conservative Canadian governments have been fairly adept at anticipating global economic trends, such as the move toward global free trade. NAFTA arrived in the mid-1990s and Canada has been a trading powerhouse since then, pumping up the economy.
By not implementing a high national carbon tax, or any national carbon tax, the Harper government gives every indication it's happy to be a bystander in the next great industrial revolution – the trillions of dollars to be spent on boosting resource efficiency and innovation worldwide in the next couple of decades. That the government does not care much about using tax incentives to encourage the oil industry to clean up its act is well known; that it doesn't believe carbon taxes can help the economy bucks the evidence to the contrary.
Eric Reguly