The Canadian Climate Institute estimates industrial carbon pricing will likely be responsible for as much as 48 per cent of Canada’s emissions reductions by 2030, versus between 8 and 14 per cent for the consumer carbon levy paid the gas pump.Christinne Muschi/The Globe and Mail
Parliamentary Budget Officer Yves Giroux has grudgingly admitted that his crew made a mistake – he insists it’s small and of little importance; the words I would choose are “big” and “fundamental” – in calculating the costs of the federal consumer carbon tax.
This matters because the PBO’s estimate of the cost of what is officially known as the federal fuel charge, which it first released in 2022 and updated in 2023, is the most frequently invoked piece of evidence in the debate over the carbon tax.
But a closer look at the PBO’s work, and how it’s responded to its whopper of a snafu, leads me to conclude the PBO didn’t just get one thing wrong. It got four different things wrong, each more significant than the last.
The first mistake was that data error.
The PBO aimed to model two futures: one with a federal consumer carbon price that gradually rises to $170 a tonne, and a hypothetical alternative with no consumer carbon tax. However, the PBO recently discovered that it put the wrong ingredients into the oven, and baked a different cake. The PBO says that the alternative scenario accidentally modelled a future with no carbon pricing at all. It mistakenly stripped out not just consumer carbon pricing, but industrial carbon pricing, too.
That’s a problem because the Canadian Climate Institute estimates that industrial carbon pricing is likely to be responsible for as much as 48 per cent of Canada’s emissions reductions by 2030, versus between 8 and 14 per cent for the consumer carbon levy you pay at the pump.
Which brings me to the second thing the PBO got wrong: its reaction.
Given the centrality of the PBO’s numbers to this very political debate, the PBO should have immediately publicized its error. Preservation of public respect, and its own self interest, demanded an aggressive mea culpa. To err is human; to try to bury one’s error is political.
But instead of an urgent press conference, the PBO quietly published a short and vague note of sort-of correction on April 17. Nobody in the media, or the public, noticed it until late May.
What’s more, the PBO says it won’t redo its work and fix the error until the fall. (How Ottawa.) Nor has it said that it’s reviewing its practices to understand how this happened, and how to avoid a repeat.
And Mr. Giroux last week tried to further minimize the scale of the problem. In a sit-down with CBC’s Power & Politics, he even claimed that the error was so small as to not deserve the name. “I wouldn’t say [it’s] a mistake,” he said. “There’s a modelling tweak that should have been made that is in the process of being corrected.”
He also insisted that, whether industrial carbon pricing is in the model or left out, the economic cost of carbon reduction will not much change – because the big cost driver is the consumer carbon price, not the industrial price.
I asked University of Calgary economist Trevor Tombe what he thinks of that. He suspects that Mr. Giroux has it backward, and that “it’s entirely possible that the industrial system has more of an impact than the consumer system,” he told me. “I don’t have the proof but that’s my gut reaction.” Mine too.
Mr. Giroux told Power & Politics that the “quantum” of the economic costs may change when the model is redone, but the overall conclusion will not. The inevitable result, he said, is that “the moment you impose a cost on greenhouse gas emissions, there has to be negative economic consequences.”
That appears to be a foundational assumption of the PBO’s model – and it’s the third of the PBO’s four missteps.
The PBO’s model looks like a kind of single-entry bookkeeping. It tallies the costs of the carbon tax but is silent on benefits. So of course it concludes it’s an economic negative. How could it be any other? The only question, as Mr. Giroux says, is the “quantum” of the negativity.
Nor does the PBO analysis consider the economic cost of the carbon tax relative to the cost of other carbon-reduction options. It compares the carbon tax to doing nothing – and doing nothing is modelled as cost-free.
If that’s how we measured, say, spending on schools, the conclusion would be that education spending, and the taxes that pay for it, are a huge drag on the Canadian economy. Or think of rules that force car manufacturers to put airbags in new vehicles. That makes cars more expensive, which means less money in consumers’ pockets, which diminishes other spending and economic activity. Under a model that considers only the cost of airbags, and not the health benefits, an airbag mandate is an economic drag that leaves everyone worse off.
Which brings me to the fourth thing the PBO got wrong. It’s something that hasn’t sat right with me and many others since that first report in 2022.
The PBO could have looked only at the relatively straightforward fiscal impacts of the carbon tax: how much money is raised, how much is rebated, and who comes out ahead or behind. The conclusion was and is that most people in the eight provinces under the federal system will get back more in rebates than they pay in carbon taxes.
But the PBO also chose to try determine the much more uncertain economic impact of the carbon tax, using a model that appears to assume, before a jot of data is entered, that the economic impact must be negative.
Even before the discovery of a coding error, those PBO choices left most Canadians confused about the cost of the carbon tax. Confusing people is the job of politicians. The PBO is supposed to clear things up.