Postponing the federal carbon tax hike is an inflation break that Ottawa could and should deliver

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Recent calls for Ottawa to scrap its planned April 1 carbon price hike could easily be viewed as opportunistic attempts from opponents to turn back the clock on government fossil-fuel measures. Or cynical appeals to segments of the electorate who question the value of carbon taxation. Or self-serving lobbying from business interests who have a knee-jerk objection to any tax increase.

Which all could be true. But delaying the increase could also be a very good, very practical idea – one that even the supporters of the federal carbon tax should embrace.

The urgency in some quarters to at least hold the line on the carbon tax comes from the acute awareness that we’re already getting steamrollered by record-high prices at the pump. Global oil prices were already at eight-year highs early in the year, as slow-growing global supplies were strained by fast-recovering demand. When Russia invaded Ukraine in late February, the prospect of Russia’s massive export supplies drying up set oil markets haywire, and consumers crying for mercy. In the past month alone, Canadian pump prices have increased by about 20 cents a litre.

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Now, along comes the scheduled April 1 federal carbon tax increase – which, to some, feels like an additional unwelcome blow. But it also amounts to 2.2 cents a litre (raising the total federal carbon fuel charge to 11 cents a litre from 8.8 cents). At Friday’s national average pump price of $1.80 a litre, it’s a drop in an increasingly deep bucket.

So, there’s the perspective. Opponents are going to say that consumers and businesses are struggling enough without a further price increase from government. Proponents are going to counter that the impact is overstated, and that it’s offset by tax credits that rebate the cost to most households anyway.

But supporters of Canada’s federal carbon pricing system – both within the government and outside of it – ought to take a step back and remind themselves of the purpose of the carbon pricing policy, and why it is structured the way it is.

The goal, in a nutshell, is to embed a cost for polluting into the purchase price of fossil fuels, and in doing so, create a financial disincentive for consumption. It was understood that this would, in the short to medium term, impose a drag on the economy, as steadily climbing costs for fuel and heating raise business and consumer costs, and subtract from spending available for other goods and services.

Raising the carbon price a bit at a time, over a decade, is meant to spread that economic pain over digestible increments, rather than overwhelm the economy with sudden, dramatic increases in carbon costs. Consumption behaviours would change gradually as the costs steadily rose.

Russia’s invasion of Ukraine has thrust a more accelerated timeline upon us. It has changed the conversation, not just in Canada but globally, about energy security, conservation and decarbonization. In that sense, the whole point of increasing the carbon price is already being met – through circumstances quite outside of environmental public policy, but being met nevertheless.

At the same time, the surge in fuel costs has also set off serious anxiety about the stability of the economy, and is a critical factor in the rising talk of recession. A 20-cents-a-litre gasoline price hike is a whole different level of destabilizing than some incremental annual increases of a few cents. This is precisely what governments sought to avoid when they decided to impose a price on pollution gradually over many years.

So, we find ourselves in a situation where not only have geopolitical circumstances delivered the desired disincentives to fuel consumption, but have done so on a scale that poses a much more serious threat to economic stability. The addition of more carbon taxes, at the precise same moment as this has happened, looks not only unnecessary but counterproductive.

What’s more, there’s essentially no revenue impact for the government to postpone this increase. Ottawa returns almost all the money directly to taxpayers in the form of rebates. (About 10 per cent is delivered as more targeted supports for affected groups such as farmers and small businesses within each province where the federal tax is collected.)

Unlike some of the other breaks that a few provincial governments have announced in response to the fuel price surge – one-time cash handouts in Quebec and British Columbia, a holiday on provincial fuel tax in Alberta – a postponement of the federal carbon price increase wouldn’t deliver an unneeded stimulus to consumer demand. It’s a way to lend a helping hand to consumers without adding most definitely undesirable fuel to the inflation fire.

If there’s a downside to postponing the April 1 hike, it would be one of optics – the notion that it would send the wrong signal about the government’s commitment to its climate strategy. But explained properly, and with a firm commitment to follow through on the carbon price increase if and when fuel prices retreat to a specific threshold, a delay would be not only a welcome move in many quarters, but a sound one.

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