Fed­eral plan may ap­peal to many in Al­berta

Re­turn­ing cash to house­holds may well be pop­u­lar, Trevor Tombe says.

Calgary Herald - - FRONT PAGE - Trevor Tombe is a Fel­low at The School of Pub­lic Pol­icy, Univer­sity of Cal­gary

“Start­ing next year, it will no longer be free to pol­lute in Canada,” de­clared Prime Min­is­ter Justin Trudeau on Tues­day morn­ing. Con­ser­va­tive Op­po­si­tion Leader An­drew Scheer, mean­while, says the gov­ern­ment is try­ing to “trick Cana­di­ans into pay­ing higher taxes.”

They’re talk­ing, of course, about the never-end­ing po­lit­i­cal bat­tle that Al­ber­tans, and now Cana­di­ans, are all too fa­mil­iar with. They’re talk­ing about The Car­bon Tax.

Though a lit­tle be­hind sched­ule, all the im­por­tant de­tails be­hind the fed­eral plan were laid bare on Tues­day. Though Al­berta is not di­rectly af­fected (for now), the fed­eral plan mat­ters here too. A lot. At the very least, car­bon taxes will dom­i­nate both the Al­berta and the fed­eral elec­tions in 2019. And it’s un­like any car­bon tax plan we’ve seen. So it’s worth re­flect­ing on what just hap­pened.

Car­bon emis­sions will be taxed at $20 per tonne next year, ris­ing to $50 by 2022. We knew this al­ready, and we also knew why. An over­whelm­ing ma­jor­ity of econ­o­mists see mar­ket-based ap­proaches, like a car­bon tax, as the cheap­est way to lower emis­sions. It leaves de­ci­sions over how to lower emis­sions to in­di­vid­u­als and busi­nesses. Al­ter­na­tive cen­trally planned ap­proaches — where gov­ern­ment chooses which light bulbs we can use or reg­u­lates how ap­pli­ances are de­signed — tend to cost more.

We also knew the fed­eral pro­gram will ap­ply dif­fer­ently in dif­fer­ent prov­inces. In prov­inces that do not fully price car­bon them­selves, the fed­eral gov­ern­ment will in­stead. Though con­tro­ver­sial, this isn’t new ter­ri­tory. Fed­eral pro­grams reg­u­larly al­low prov­inces to opt out. Que­bec availed it­self of this nu­mer­ous times since the 1960s. If a prov­ince doesn’t have its own com­pa­ra­ble pro­gram, the fed­eral one pre­vails.

The big ques­tion, which was an­swered on Tues­day, was how to use the rev­enue.

For the four af­fected prov­inces (Sask., Man., Ont., and N.B.), each dol­lar raised from a given prov­ince will re­turn there. And re­turn in a sim­ple way: 90 per cent as a lump­sum trans­fer to house­holds, and 10 per cent as tar­geted sup­port to small busi­nesses, re­mote com­mu­ni­ties, mu­nic­i­pal­i­ties and so on. Sim­ply put, the fed­eral plan is largely a “fee and div­i­dend” ap­proach to car­bon pric­ing. To my knowl­edge, no other ju­ris­dic­tion in the world has done this.

While the gov­ern­ment could have low­ered in­come taxes, which cre­ates eco­nomic ben­e­fits through in­creased em­ploy­ment and in­vest­ment, send­ing cash trans­fers di­rectly to house­holds has po­lit­i­cal points in its favour. Toronto Post­media colum­nist Lor­rie Gold­stein (who, to be clear, is skep­ti­cal of the gov­ern­ment’s plan) has called fee-and-div­i­dends “the most hon­est, fair and ef­fec­tive form of a car­bon tax.” There are a few rea­sons for this.

It’s easy to show the car­bon tax isn’t a “tax grab.” Dol­lars in and dol­lars re­turned will be mea­sured and re­ported an­nu­ally. Any dis­crep­an­cies will be cor­rected the fol­low­ing year.

It’s a large vis­i­ble ben­e­fit to house­holds, which might be dif­fi­cult for fu­ture gov­ern­ments to can­cel. Saskatchewan vot­ers, for ex­am­ple, might think twice be­fore sup­port­ing a pro­posal that, by 2022, would can­cel a trans­fer worth $1,400 per year for the aver­age house­hold there. (Yes, you read that right.)

And it changes the po­lit­i­cal cal­cu­lus in prov­inces out­side the fed­eral plan too, like Al­berta.

It’s easy to see why. Cur­rently, 40 per cent of Al­berta’s car­bon tax is used to fund house­hold trans­fers. Un­der the fed­eral plan, that would rise to 90 per cent. For per­spec­tive, the aver­age house­hold in Saskatchewan will re­ceive $883 when the car­bon tax there reaches $30 per tonne. In Al­berta, re­bates for those who qual­ify are $300 for a sin­gle in­di­vid­ual or $540 for a cou­ple with two kids. In ad­di­tion, one in three Al­berta house­holds do not re­ceive a re­bate to­day. Un­der the fed­eral plan, every­one would.

As we ap­proach 2019, vot­ers will ul­ti­mately de­cide. But now, un­ex­pect­edly, re­plac­ing Al­berta’s car­bon tax with the fed­eral ap­proach may ap­peal to many.

No other ju­ris­dic­tion in the world has done this.

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