Canada’s federal carbon tax has reached a critical turning point. Its continued existence beyond the next election seems unlikely, and a scheduled increase of $15 per tonne of CO2 on April 1 is under withering political fire.
Given the cost-of-living crisis in Canada, does it make sense to raise a tax that may be in its final months? Killing the carbon tax is a foundational promise in the Conservative Party’s campaign to win the election slated for no later than October, 2025. Polls show the Tories leading the Liberals by double digits and heading into majority territory.
This space has always supported carbon pricing, and still does. The April 1 increase should go through.
But if Canada has come to the point where an efficient and smart way of reducing climate-heating emissions is in an existential crisis, the blame falls on the government that implemented it and then undermined it, on an opposition party that has deliberately misrepresented the tax, and on premiers grasping at a short-term political win for their voters.
Pricing pollution is intelligent policy. It lets individuals make choices about their consumption of fossil fuels, and rewards businesses that innovate ways of cutting their emissions. It has been shown in studies to reduce emissions while minimizing economic harms.
Under the 2019 regime brought in by the Liberals, it also supports families through the transition to a low-carbon future. The Liberals say a majority of Canadian households will receive rebates in 2024 that more than cover their federal carbon tax payments, all paid for by revenues from the tax.
The Liberals narrative ignores the fact that the tax’s effect on the broader economy amplifies its cost to the country. And their description of the tax as “revenue neutral” glosses over the fact that 10 per cent of revenue is spent on green projects, rather than payments to households.
Still, the entire point of the tax is to make fossil fuels more expensive. The April 1 increase will add 3.3 cents to the price of a litre of gasoline, for a total carbon tax of almost 18 cents a litre. It will also increase the cost of other fossil fuels. People will be spurred to drive less, buy more fuel-efficient vehicles, lower the thermostat, or buy a heat pump.
But opponents of the tax sell a different narrative: Canadians are living through inflationary times, and this is not the moment to add to their burden, no matter the cause.
The Liberals could have ignored that line of attack, but they themselves linked the carbon tax to the cost of living in October, when Prime Minister Justin Trudeau announced that his government would pause the tax on home heating oil, but not on natural gas – a move that mostly benefits the Atlantic provinces, where Liberal support is critical.
That fatal and divisive undermining of the carbon tax naturally led premiers outside the Atlantic provinces to demand that the pause be extended to natural gas. A majority of premiers are now also calling on Ottawa to postpone the April 1 increase for the same reason – the cost of living.
Mr. Trudeau is cornered. Last week, he accused premiers of being “short-term thinker politicians,” and boasted that it wasn’t his job to be popular – this from the man who undercut a signature program for the sake of his party’s popularity in the Atlantic provinces.
He also went on about preferring a “market-based approach” to “the heavy hand of government.” In Canada, the heavy hand of government is usually attached to the outstretched arm of Liberal policy. That’s certainly the case with lowering emissions: the majority of the government’s climate change arsenal is made up of regulations and subsidies.
It may also be the case that Mr. Trudeau and the Liberals are rushing to the defence of the carbon tax when it’s too late. They should never have implied that it would be painless.
Ottawa used to be able to do painful and unpopular things that were essential for the long-term health of the country. Brian Mulroney brought in free trade and the GST; the Liberals under Jean Chrétien eliminated the deficit before Canada crashed into a debt wall.
The federal carbon tax, as part of the critical fight against climate change, could have been up there with those historic political wins. Sadly, the Trudeau government’s missteps may have doomed it. The Conservatives smell blood, and too many premiers see a political win in piling on. What could have been a Canadian success story may be remembered as an opportunity lost to short-sighted politics.