Smoke rises from the stacks at an energy facility in Toronto. THE CANADIAN PRESS/Frank Gunn

By Derek Craddock

TO TAX OR NOT TO TAX?

Economists hope to dispel myths as carbon tax increase approaches

Mar 27, 2024 | 5:00 PM

It has its critics and its supporters, but who is right and who is wrong when it comes to the debate over the federal carbon tax?

As of April 1, that levy will rise from $65 to $80 a tonne, representing an increase of 23 per cent.

That increase will mean a rise in energy bills and an addition of roughly three cents a litre at the fuel pump.

The tax, which has only been in Canada for the past five years has had plenty of opposition from the federal Conservative party to several premiers, including Saskatchewan’s Scott Moe, which called for the tax increase to be paused amid a cost-of-living crisis.

On Wednesday, Moe appeared before a House of Commons committee to plea for the carbon tax increase to be stalled saying it’s making life unaffordable for Saskatchewan families.

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Liberal, NDP and Bloc Québécois MPs pushed him to explain what he would do instead with Moe saying that industry and farmers have lowered their emissions and are displacing products overseas that have a higher carbon footprint.

He added that big polluters shouldn’t be forced to pay for their pollution — they should just emit less.

The federal Conservative Party and leader Pierre Poilievre have greatly opposed the federal carbon tax and have made it their mission to “Axe the Tax”.

It’s even part of the party’s official policy documents.

“We believe that there should be no federally imposed carbon taxes or cap and trade systems on either the provinces and territories or on the citizens of Canada. The provinces and territories should be free to develop their own climate change policies, without federal interference or federal penalties or incentives,” reads Policy 34.

However, Prime Minister Justin Trudeau and the Liberal Party of Canada, continue to staunchly defend the carbon tax with Trudeau recently arguing it is the best and most affordable way to tackle climate change and reduce emissions.

With the tax here to stay, Saskatchewan economists are using this time to clear the air on some issues regarding the levy and its impact.

Brett Dolter is an assistant professor in the Department of Economics at the University of Regina and has taught countless courses on climate change policies such as carbon pricing.

Dolter said the basis for the federal carbon tax was the province of British Columbia, which introduced its plan in 2008. In recent years, he said studies have shown B.C.’s carbon tax system did help.

“Emissions are going down in B.C. much more than in the rest of the country, which didn’t have carbon pricing at that time,” he said, adding that B.C. used the levies revenues to cut corporate and income taxes and offer an incentive for some lower-income households.

According to the Government of B.C., greenhouse gas (GHG) emissions have declined greatly, per person, compared to 2007, the year before their carbon tax was introduced.

(Government of British Columbia)

Despite a couple of years of higher levels, GHG emissions have decreased since 2007, but are still a long way off from the 2025 target of about 54 million megatonnes of carbon dioxide equivalent (Mt CO2 eq).

(Government of British Columbia)

The Canadian numbers show that in 2021, about 670 Mt CO2 eq was recorded, a slight increase from 2020 but below 725 Mt CO2 eq in 2018, before the federal carbon tax was introduced.

(Government of Canada)

For most of Canada, the revenues generated from the carbon tax are not used to cut other federal taxes but rather go toward the rebate system to give money back to households. Dolter said there has been a lot of talk about the validity of households getting more in rebates than in paying the tax. Regardless, he said it’s true.

“Those rebate checks end up meaning that there’s more money going back in the hands of about 80 per cent of households in Saskatchewan than they’re paying in carbon pricing,” he said.

“That’s not only just the carbon pricing on gasoline, diesel, direct carbon pricing, but also any of the carbon pricing that would be built into the prices of products.”

He noted that those in higher income brackets, about 20 per cent of income earners, pay more in carbon costs than rebates but they’re generally spending more money and have more money.

Dolter even presented his findings from a report by the Parliamentary Budget Officer (PBO), showing that, on average, low and middle-class households were getting more back in these rebates.

The PBO’s report also acknowledged that taxes and climate regulations have costs for consumers, especially those buying electric vehicles, replacing insulation in their homes or purchasing other items to limit the amount of carbon tax they’re paying.

But the future of the climate incentive rebates is in jeopardy after the Sask. Party government stopped remitting the federal carbon tax on home heating in protest to the Liberal’s decision to exempt home heating oil from the levy, mainly affecting homes in Atlantic Canada. The federal government has threatened to remove Saskatchewan’s climate incentive payments, but no firm date has been set.

While many households are getting relief from the carbon tax, many businesses feel they’re left in the dark.

The Canadian Federation of Independent Business (CFIB) claimed $32 billion was collected in carbon tax revenue since 2019. Although the government promised to rebate nine per cent of that amount to small businesses, only 0.17 per cent has been returned. For Saskatchewan, it means each small business is owed about $6,990 in unpaid rebates, despite contributing about 40 per cent of the tax.

Another topic economists are tackling is that the carbon tax is a major contributor to inflation, with grocery prices and other goods going up constantly.

While carbon pricing affects the cost of food and other items, Tristan Skolrud from the Department of Agricultural and Resource Economics at the University of Saskatchewan said the carbon tax is a tiny part of the reason.

“These types of indirect taxes have increased prices by about. 0.6 per cent from their 2015 levels, it’s very, very minuscule relative to the other forces that have caused increases in prices, namely heat changes in the global energy market,” he said. He added the war in Ukraine, the global oil market and recovering from COVID-19 supply chain disruptions are greater contributors to inflation.

“This is not going to have a big macro effect on prices that people pay for goods that have involved carbon somewhere in the supply chain, that’s another common argument that people make is that now the carbon tax gets passed on from industry to consumer. Because everyone’s paying this carbon tax, that means that our groceries are this much more expensive but it’s just not true.”

Skolrud pointed to figures in Alberta that showed the carbon tax only contributed to about $5 a month in groceries compared to other factors.

Prime Minister Trudeau has clapped back at carbon tax opponents saying they need to come up with a better plan if they’re going to refute the federal one.

While the Conservatives are against federal carbon pricing, they do favour investing in alternative energy sources.

“We believe the government should support and encourage the private development of alternative sources of energy and fuels, including wind, solar, and geothermal sources of energy; alternative transportation fuels including biodiesel from oil seed crops and methanol, ethanol or methane from biomass and organic waste; fuel cell technology and the use of hydrogen as transportation fuel,” reads Policy 52 on the party’s long-term energy framework.

The party also supports a transition to green energy sources but they don’t have a firm timeline like the Liberals, instead saying that oil and gas must still be used and available in a gradual transition to clean energy.

Lost in the waters of the carbon tax debate is that on the same day the levy increases, Members of Parliament on both sides of the House will see their salaries rise.

According to estimates from the Canadian Taxpayers Federation (CTF), after April 1 backbench MPs will receive a $202,700 annual salary. A minister will collect $299,300, while Prime Minister Trudeau will take home $405,400.

“We haven’t heard a single MP from any party forcefully try to stop the pay raise,” said CTF Director Franco Terrazzano. “On the very same day (that) politicians take more money out of Canadians’ wallets with tax hikes, they’ll be stuffing more money into their own and that’s wrong. All MPs should speak out against the tax hikes and politician pay raise.”

Since 2020, a regular MP’s salary has increased by roughly $23,000 with the Prime Minister’s wage going up $47,600 in that same timeframe.

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derek.craddock@pattisonmedia.com