A CARBON TAX ISN’T ENOUGH
Government must support those hit by pricing changes, says Toby Sanger.
Prime Minister Justin Trudeau and Environment Minister Catherine McKenna demonstrated admirable backbone this week by telling provinces they’ll introduce a minimum $10 per tonne price on carbon in 2018, which will rise to $50 per tonne by 2022, if provinces and territories don’t do so themselves.
This announcement led to wailing by some politicians, but polling suggests that they’re offside with a majority of Canadians and the vast majority of economists. A recent Nanos poll reported that 62 per cent of Canadians support having a Canadawide minimum price on carbon. Surveys have found high majorities of economists (more than 80 per cent) also support carbon pricing.
The federal government’s plans are similar to the national harmonized carbon tax that we’ve proposed in the alternative federal budget for many years. Other organizations and individuals from across the political spectrum also strongly support carbon pricing as a tool to reduce carbon emissions.
While putting a price on carbon is an important step, governments will have to do much more to reduce carbon greenhouse gas emissions and ensure carbon pricing measures are effective and equitable.
Not putting a price on carbon or other pollutants is only one of many “market failures” of our economic system. Just relying on carbon pricing to reduce emissions would be inefficient, expensive, disruptive and economically damaging. We’d need a price of at least $100 per tonne to reach the target of a 30-per-cent reduction from 2005 levels by 2030 and of $200 per tonne to reach the more ambitious Kyoto targets. A $200-per-tonne carbon tax would increase the price of gas by 47 cents per litre and the price of fuel oil by about 60 cents a litre.
This would cause considerable hardship for many households and sectors of the economy.
It makes much more sense to apply carbon pricing in a planned and co-ordinated manner with a variety of complementary tools: investment in alternatives, public sector leadership, education, research and design, and regulatory changes. Increasing the price of gas won’t do much to reduce daily commutes to and from the suburbs by car unless there are alternatives, such as affordable and accessible public transit and an infrastructure to support electric vehicles.
A carbon price of $50 per tonne would increase costs for an average household in Canada by at least $1,500 annually. Because lower-income households spend a higher share of their budget on carbon-intensive goods and services, it would affect them proportionately more than those with higher incomes. Lower-income households also have less ability to adjust and invest in energy-efficient alternatives, such as hybrid and electric cars or more efficient heating and homes.
All governments should introduce measures to assist and compensate lower- and middle-income households and vulnerable groups, such as low-income energy retrofits and rebates or credits. If they don’t, a carbon price will lead to increased inequality.
Climate change plans should also include other measures to ensure that vulnerable workers, industries and communities that will be more affected by carbon pricing are assisted in making the transition. These should include planning to identify economic and employment impacts, training and education for new jobs, maintenance of a decent social safety net and substantial public infrastructure investments.
The Green Economy Network estimates that one million person years of employment could be generated over five years from a $16-billion annual investment in public transit, renewable energy, high speed rail and energy efficiency. This may sound expensive, but a carbon tax of $50 per tonne would generate about $30 billion annually at current emission levels. This will provide governments with significant revenues both to compensate households and to invest in complementary measures to ensure a smoother transition to a more sustainable economy.
The federal government’s carbon pricing plan should be welcomed. It will certainly involve costs, but with coordinated planning, provinces can ensure the benefits exceed these costs.
The federal government’s carbon pricing plan should be welcomed. It will certainly involve costs, but with co-ordinated planning, provinces can ensure the benefits exceed these costs. Toby Sanger