In late 2020, when the federal Liberals made an escalating carbon tax the centrepiece of their climate plan, it was a surprise.
Yes, the Liberals had already brought in a carbon tax. The original version was to top out at $50 a tonne in 2022; on a litre of gasoline, that’s 11.1 cents as of April 1. But the Liberals for a time seemed hesitant to go further. Federal and provincial conservatives campaigned hard against the levy, and the policy’s legitimacy was being tested in the courts.
Yet even before the right to impose a federal carbon price on provinces was vindicated at the Supreme Court last year, the Liberals unveiled their plan to increase it by $15 a tonne annually from 2023 through 2030 – when it would add 37.6 cents to the price of a litre of gas.
That was, and is, a big number. But the logic is sound: use the market lever of higher consumer prices to encourage Canadians to shift their behaviour, and then return the carbon tax revenue to them in the form of an income tax rebate, or, as of this year, a direct federal payment.
Which brings us to the present. You may have noticed the price of gasoline is up these days, shot higher by Russia’s illegal war in Ukraine and a global supply crunch. At the start of the year, the average price of gas in Canada was $1.45 a litre, according to the consultancy Kalibrate. It’s now almost 40 cents higher, at $1.83. Vancouver has topped $2; Calgary nears $1.70, Toronto is $1.80, Montreal is $1.90.
While a sudden spike in already-inflationary times is not easy for households to shoulder, rising gas prices is the goal of an ever-increasing carbon tax. The new rate in April at 11.1 cents isn’t much, yet. But adding 21 cents a litre in 2025, and 37.6 cents in 2030, that’s something else. Gasoline was, thanks to a federal policy to drive down transportation emissions, heading toward $2 a litre even before the war in Ukraine. It just wasn’t supposed to happen so fast, and people are feeling it.
On Monday, the federal Conservatives proposed cutting the GST from gasoline to save drivers 8 cents a litre. They didn’t quite say it, but that pretty much eliminates the current carbon tax. In Alberta, Premier Jason Kenney – who calls himself a “carbon tax enemy” (even as his government charges the levy on industry) – is slashing Alberta’s fuel excise tax of 13 cents a litre to zero as of April 1. The policy could cost the province $1.3-billion in a year.
In British Columbia, where prices are highest, the NDP won’t cut gas taxes, but are set to announce some sort of relief this week.
If temporary support for Canadians is going to be the norm, B.C. is on the better track. Relief at the pumps doesn’t help everyone. It only serves drivers, while doing nothing for people who take transit. And Alberta’s gas tax break will give the most money – more than a third – to the richest fifth of the population.
California is looking at a broader approach. Last week, lawmakers there proposed using US$9-billion of the state’s surplus to send everyone US$400. That’s similar to what the University of Calgary’s School of Public Policy argued after Alberta made its gas tax move: “Affordability is best addressed through direct cash transfers rather than changing the price of the fuel itself.”
Both those ideas happen to echo how Canada’s consumer carbon tax is designed to work. The revenues that Ottawa collects in the provinces where it runs carbon pricing – Ontario, Manitoba, Saskatchewan and Alberta – are returned to residents. This fiscal year, a family of four will get quarterly payments from Ottawa estimated to range from more than $600 in Ontario in total, to more than $1,000 in Alberta and Saskatchewan. And most will get more back than they spent on carbon taxes.
A similar sort of direct relief from governments inclined to offer it makes far more sense than forgone GST or excise tax revenue.
Plus there is something inherently wrong about cutting gas prices while failing to offer lower transit fares, or increased service, to help people who don’t own cars.
No one likes expensive gasoline. But the knee-jerk response that high gas prices mean drivers need a tax break at the pump is antediluvian thinking. The future is less gasoline. This winter’s shock is jarring, but it focuses the mind. To see gas near $2 a litre is new to Canadians. By the end of the decade, it will be normal, and by design.
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