Red Alert: Canada's Carbon Fee and Rebate Program Faces Mortal Threats

(Cross-posted from Nerd Corner)

Canada’s national carbon tax and rebate—the closest living relative to CCL’s proposal for a carbon fee and dividend—is mortally endangered and may soon be driven extinct. If so, the odds of bringing that model to life in the United States may fall close to zero.

As I and others have discussed, Canada’s carbon tax and rebate, administered with some variations based on provincial choices, has survived several challenges from the Conservative Party since it took effect in 2019. But the huge run-up in energy prices after Russia’s invasion of Ukraine, and broader price inflation triggered by supply shocks during the pandemic, have changed the political equation, as I warned in a previous post.

With Prime Minister Justin Trudeau’s ruling Liberal Party sinking in the polls, Conservatives promise to “ax the tax” if they win the next national elections. Voters seem to support them, even though most Canadian households gain financially from carbon rebates.

Making matters worse, the leader of the New Democrats (NDP), who are partners with the Liberals, recently said he may not support broad-based carbon pricing going forward. The premier of British Columbia, where Canada’s highly successful experiment with general carbon pricing began in 2008, said he might curtail it as well if the national government repeals its law.

Max Fawcett, writing for Canada’s National Observer, comments gloomily, “the Conservative campaign against the carbon tax has overwhelmed the best efforts of this country’s leading economists and climate policy experts. . . The carbon tax was a litmus test for our collective ability to sort fact from fiction and put the interests of future generations ahead of our own. On both counts, we have failed miserably. The . . . demise of the carbon tax is proof that the best ideas don’t automatically win the day, and truth is no defense against weaponized deceit. It’s also a victory for a kind of political nihilism that is ascendant across the Western world right now, one that doesn’t bode well for our ability to meet or manage the challenges that surely lie ahead.”

William Scott, an economist and environmental policy expert at Simon Fraser University in British Columbia, points out that axing the tax won’t do anything to control the huge costs of climate change faced by the province “in the form of recent flooding, fires and smoke events. Each and every tonne of greenhouse gases we emit adds to these costs. The latest estimates put the price of these economic damages at more than $250 per tonne."

“If carbon pricing does disappear,” he added, “a mix of new policies and increasing the stringency of those we have will be required to make up the gap. But these policies tend to be less cost-effective than an explicit carbon price and can also impose greater costs on low-income households without the revenue generation from a carbon tax that we can use to support those families. . . Even worse, suggesting we do nothing commits us to higher costs and a more unstable climate for our children. There is no free lunch. Climate change has costs and sooner or later they will be paid.”

Even as many Canadians sour on carbon pricing, evidence suggests that it is working. The Canadian Climate Institute reports that the country’s climate policies succeeded in cutting carbon dioxide emissions by 14 million metric tons last year, despite strong economic and population growth. Emissions per dollar of GDP fells 3 percent, a welcome improvement over the 2 percent historical trend though well below the 7 percent needed if Canada hopes to achieve its emissions targets by 2030.

The electricity and buildings sectors each achieved 6 percent emissions cuts, but their contributions were partially undermined by a one percent increase in emissions from the oil and gas sector. The latter now accounts for nearly a third of all national emissions, reflecting a failure—familiar to those of us south of the border—to rein in this politically powerful industry. Bloomberg reports that effective carbon prices on industry in the province of Alberta, where the oil and gas sector is concentrated, have plummeted.

Such news should prompt reforms to shore up carbon pricing in Canada, not abandon it. Meanwhile, climate activists everywhere should mobilize to support Canada’s imperfect but still shining example of good climate policy.