Pierre Poilievre has raised his refrain across the country, “Axe the Tax!” He is referring to the carbon tax, of course. But he has been mute about how he will replace it, and how he will fight climate change. His only suggestion has been “technology.” That’s a non-answer. How will he convince the private sector to make the massive investment required in technology?
Experts suggest carbon pricing is the right choice. Canada’s Ecofiscal Commission, a panel of economists, in a 2019 report recommended it. “A stringent, rising carbon tax can get Canada to its 2030 target at the lowest possible price to the economy.” The commission affirmed this finding is “consistent with numerous other studies.”
In addition to the carbon tax, there are two other broad climate policy options: regulation and subsidies. The Trudeau government has rashly chosen all of the above. They have revealed a series of climate regulations applying to broad sectors of the economy to supplement the carbon tax. The government now seeks to regulate electrical generation, oil and gas production, home and commercial construction, automobile production and no doubt more sectors.
Their goal is to impose emissions limits upon a wide swath of manufacturing and resource industries, while incentivizing company and consumer actions it wants where it can’t regulate, and where it can as well. This effort is ill-advised for three reasons:
First, the constitutionality of the regulations is suspect. Alberta and Saskatchewan will object to federal intrusion in their jurisdiction over resources. The Supreme Court, in a comparable case, ruled the Impact Assessment Act is largely unconstitutional. The court asserted that the federal government must respect the “division of powers framework laid out in the constitution.”
Grant Bishop argues in a C.D. Howe Institute memo that the court has precluded, “broad federal jurisdiction for regulating each and every GHG-emitting activity.” Bishop states the IMA ruling puts the government’s net-zero electricity regulation and industry-specific cap on emissions of the oil and gas industry on “shaky constitutional ground.” These matters could remain before the courts for years to come, creating uncertainty and impeding private sector investment.
Second, companies will find themselves subject to heavy costs related to climate regulation in all targeted industries. The costs will further weigh on the competitiveness of Canadian goods and on the economy more broadly. Canada’s present economic and income growth is arguably amongst the worst in the developed world. Under the Liberals, that is destined to continue.
Third, to continue to follow the lead of the Biden Administration in the United States – providing subsidies for clean industries and clean incentives for consumers – is prohibitively expensive. It will further erode the government’s fiscal position and Canada’s competitive position.
The Ecofiscal Commission report examined three approaches to reduce emissions to Canada’s 2030 target. A significantly higher economy-wide carbon tax results in GDP per capita about $1200 higher in 2030 than does subsidies and economy-wide regulations, and $3300 higher than does subsidies and industry-specific regulations. In fact, under the last approach, GDP per capita falls. A version of this approach is the one the Liberals have inappropriately adopted.
Bishop correctly concludes, “Ottawa’s climate policy risks spiraling into an economic and constitutional mess. … With industry exasperated by policy uncertainty in Canada and diverting investment elsewhere, Ottawa should spend less effort on expanding federal power and instead bolster its capabilities for competently administering carbon pricing nationally.”
It is not hyperbolic to suggest that Liberal climate policies may threaten Canadians’ livelihood and Canada’s national unity.
Back to Poilievre. To vilify the carbon tax was an astute political move. He saw the affordability crisis coming, and he shrewdly and consistently focused on it before his political opponents did. “Axe the tax” is a major piece of this strategy, and has aided the Conservatives’ rise in the polls.
But it is unfortunate the CPC have successfully turned public opinion against the tax. If the Conservatives assume power, they will have effectively taken Canada’s least costly option for addressing climate change off the table. And they will have rejected the best policy option for a free-enterprise, Conservative government – a market-based approach to reduce GHG emissions.
Finally, if a prospective Conservative government is to cut emissions, they will be forced to adopt the more intrusive and costly regulatory and subsidization policies championed by the Liberals. That is an adverse outcome for any government and for the country!
bruce
Bruce W Uzelman, based in Kelowna, holds interests in economics and political science.