What’s missing in carbon tax debate

This article was written by Peter Dietsch and was published in the Toronto Star on April 27, 2024.

PETER DIETSCH IS A PROFESSOR IN THE DEPARTMENT OF PHILOSOPHY AT THE UNIVERSITY OF VICTORIA.

The Conservative party has promised to “axe the tax” if elected, suggesting that abolishing the carbon tax would lead to lower prices for average Canadians. The Liberals, meanwhile, are defending the current carbon tax and the planned increases until 2030 as the most effective way to incentivize Canadians to change their consumption patterns and wean us off fossil fuels.

Both of them are wrong. Their trading barbs over this issue is a symptom of the shockingly poor quality of public debate on climate mitigation in Canada.

Start with the Conservatives’ position. Leader Pierre Poilievre argues that ending the carbon tax would reduce inflationary pressures and make life more affordable. This conveniently ignores the fact that Canadians on lower incomes who are feeling the pinch of rising prices receive carbon tax rebates usually higher than what they have paid in tax.

As an example, at the current price of $80 per ton of CO2 equivalent , a family of four in Alberta — where the rebate ironically is the highest — can expect to get back $1,800 per year. At 17.61 cents of carbon tax per litre of gasoline, you would have to buy 1,0221 litres of the stuff before you are out of pocket.

The numbers just don’t add up for the “axe the tax” campaign. The only reason the Conservatives are relying on this intellectually bankrupt strategy is because they hope that the simplistic, neoliberalism-inspired “taxes are bad for you” propaganda will do the trick with Canadian voters.

As to the government’s approach, is Prime Minister Justin Trudeau’s team right to claim that the carbon tax is the most effective way to tackle climate change? Economists do indeed compare the carbon tax favourably to other policies, such as tightening regulation on emissions, a green credit policy, or abolishing fossil fuel subsidies.

Just last week, hundreds of Canadian economists signed a public letter along those lines. However, there is a second, often ignored question: Do we have reason to adopt a flat carbon tax that applies equally to all Canadians?

The answer to this question is a clear and emphatic “No.” To see why, consider the following facts that arguably represent the elephant in the carbon tax room.

First, studies show that as a rule of thumb, the top 10 per cent of individual polluters, who tend to be wealthy, are responsible for about 50 per cent of emissions.

Second, we know that the demand of the wealthy for any good or service tends to be relatively price inelastic. In other words, if you are among the top 10 per cent of polluters, 17.61 cents of carbon tax per litre of gasoline is unlikely to make you drive any less. It is easy to see then that a flat carbon tax will be relatively ineffective where it is needed most, namely when it comes to influencing the main individual polluters.

If one wants to reduce emissions by changing individual behaviour — the declared goal of the Trudeau government — then an effective carbon tax design will have to be progressive. The more you pollute, the more you pay.

Presenting a flat carbon tax as the tool of choice to reduce emissions is hypocritical. It makes a difference at the margin, but it hardly fazes those whose consumption patterns need to change most radically. The only effective carbon tax is a progressive one.

In sum, the two main political parties in Canada present voters with a choice between denial and misinformation on the one hand and hypocrisy on the other. We deserve better.