If Chris Ragan’s math is right, Alberta and Ontario should be thanking Prime Minister Justin Trudeau for imposing a carbon tax on their residents.
Ragan is a McGill University economist and leader of the Ecofiscal Commission, which costed out the pros and cons of carbon pricing against other emissions-reduction strategies like Jason Kenney’s in Alberta or Doug Ford’s in Ontario.
Without naming names, the commission shows over and over again how an escalating carbon price accompanied by rebates — the Trudeau way — is the most transparent and the least costly for the economy and taxpayers.
The costliest option is a Kenney/Ford-style focus on large emitters, in which a small section of the economy carries the load for the entire population with the goal of protecting consumers. A narrow focus on those companies, it concludes, ends up hurting everyone more than it helps.
By that reasoning, Kenney and Ford should be grateful that the federal government is mitigating the economic damage by forcing consumers to shoulder some of the burden.
Of course, that’s just what the academic modelling says. Politics is another matter. And, regardless of how clear the evidence, taking the path this report recommends will take political courage.
The Ecofiscal Commission set out to assess the costs of various approaches to meeting Canada’s 2030 target to reduce emissions, a target to which both Trudeau and his predecessor, Stephen Harper, agreed.
Its number-crunching shows that a Kenney-style combination of industry-focused regulations and subsidies would eventually damage the economy writ large. It would require, for example, that freight trucks cut their emissions in half by 2030. Industry would have to bring down its emissions intensity by two-thirds to meet national objectives. Taxes would have to rise substantially to finance subsidies for low-carbon alternatives. The economy, in the end, would contract outright.
An escalating carbon price, on the other hand, would allow GDP per capita to grow steadily so long as the proceeds of the carbon tax are redistributed to taxpayers, as the current plan foresees. The carbon price itself would have to rise dramatically between now and then to be effective, from $50 a tonne in 2022 to $210 a tonne in 2030 — something Trudeau has not yet committed to.
The price of gasoline and many other products would climb, but rebates would cover the increasing costs for most people. By the time we arrive at 2030 and the emissions reductions are in the bag, Canadians would each be $3,300-a-year richer under carbon pricing than under the large-emitter-only scenario.
(A middling approach that sees government impose regulations and issue subsidies to target the economy as a whole, and not just heavy emitters, would see the economy expand but only by a bit, and taxes or deficits would have to go up somewhat as well.)
Carbon pricing is also easier to see and understand — which has political pros and cons. The carbon tax has provoked a vicious backlash in some provinces, and the Conservatives campaigned hard against it during the last campaign. But the commission argues that once the public fully understands the economic cost of zeroing in on large emitters, there will eventually be a backlash there, too.
None of the solutions are pain-free, either economically or politically. The savvy politicians who are increasingly engaged in the search for federal-provincial peace and an effective plan to confront global warming understand this.
That’s why the federal government and the Prairie premiers alike are willing to put a bit of water in their wine as they try to map out a coherent way forward on energy and the environment.
And it’s why they all have their fingers crossed that industry — under pressure from financial markets, consumers and governments alike — will find some more palatable answers.
Increasingly, that’s where the political compromise lies if Canada has any chance of meeting its climate change targets. If new technologies allow companies to transition to a low-carbon economy or extract oil and gas with lower emissions, the burden on government and taxpayers will be that much less.
The incentives for the private sector to design the secret sauce are mounting every day. Countries around the world are demanding and legislating cleaner technology. Financial markets increasingly reward solutions and penalize high emissions. Regulators are demanding more disclosure of climate risk, prompting companies to find ways to mitigate it.
And new research — such as Tuesday’s warning from the United Nations Environment Program that temperatures will rise by 3.2 C this century without decisive action — prompt demands from the public to transition to a low-carbon economy right away.
Sobering accounts like that make it clear that relying on hopes and dreams is not nearly enough, and the courage to raise the federal carbon price will soon be required.
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