Last week, Canadians got to watch the political equivalent of a solar eclipse: the federal NDP and Conservative Party of Canada voting together on a motion about climate policy. It was just one of the many unintended consequences of the Trudeau Liberal government’s baffling decision to grant a carbon tax exemption for home heating oil. At this point, it’s hard to see how the carbon tax they’ve spent years fighting for won’t get rolled back even further — if not eliminated completely after the next election.
This would be a major disappointment for the cadre of high-profile economists who have been the biggest backers of a carbon tax for decades. Back in 2008, a group of 230 economists put their names to a letter calling for a carbon tax as the best way to address climate change. Alberta’s 2015 Climate Leadership Plan, which arose from a panel chaired by eminent economist Andrew Leach, revolved around an economy-wide carbon tax. And a 2019 report by the Ecofiscal Commission, a group of independent Canadian economists, reinforced the case for an economy-wide carbon tax as the best way to reduce greenhouse gas emissions.
The authors of that landmark report even warned politicians against the temptation to lean on tools like regulations and subsidies instead of their preferred policy approach. “While low-visibility, high-cost policies may be easier to implement at the outset,” the report concluded. “They may prove less durable over time as stringency and costs rise.”
The authors weren’t alone in favouring a more transparent price on carbon over things like regulations and subsidies. In the United States, a group of 45 economists — including former U.S. Federal Reserve chairs Alan Greenspan, Janet Yellen and Paul Volcker — put their names to a shared statement in support of carbon taxes. “By correcting a well-known market failure, a carbon tax will send a powerful price signal that harnesses the invisible hand of the marketplace to steer economic actors towards a low-carbon future.”
With the benefit of hindsight, I think it’s now clear the economists had this one backwards. The carbon tax’s visibility is its biggest vulnerability, one that populist politicians on the right have exploited relentlessly. In the United States, meanwhile, the combination of an Obama-era regulation on coal-fired electricity and last year’s $380-billion subsidy bonanza known as the Inflation Reduction Act have fundamentally altered the path of greenhouse gas emissions in that country. The more the invisible hand stays that way, it seems, the better.
In fairness to our economists, few could have predicted a global pandemic and the ensuing fiscal stimulus packages would create an inflationary crisis that made the carbon tax’s presence far more conspicuous than it might be in more normal times. And even fewer would have expected the federal government responsible for implementing a carbon tax to fail so completely in communicating the existence of a rebate to voters.
But maybe, just maybe, the Trudeau government should have spent a little more time listening to the political scientists in their midst and a little less to the economists who clearly ran herd on the policy’s design and implementation. By privileging economic efficiency over political durability, they set themselves — and the carbon tax — up to fail.
There was at least one Canadian economist who saw this all coming: Mark Jaccard. Back in 2018, the SFU professor wrote an op-ed in the Globe and Mail that stands out today for its prescience and perspicacity. “Carbon pricing is not essential to stop burning coal and gasoline,” he argued. “We economists only say it is because we prefer it.”
Their preference, Jaccard wrote, was informed almost entirely by intellectual concerns rather than pragmatic ones. “Surveys have long shown that taxes are a toxic issue for some voters. Unless it is an obvious tax cut, any other tax change for societal benefit can easily be framed by opponents as economically harmful. A politician proposing carbon pricing presents an irresistible target.”
Indeed, in a previous piece for Policy Options in 2016, Jaccard took that argument even further. “While carbon pricing has become a mantra for economists, environmentalists, academics, celebrities, media pundits and even corporate heads, none of these people needs to get re-elected,” he wrote. “For politicians with survival instincts, it’s a different game.”
If that game wasn’t clear after the Alberta NDP’s defeat in 2019, it should be abundantly obvious now. Carbon taxes may be the most economically efficient way to reduce greenhouse gas emissions, but only if they remain in place and continue rising in stringency. If they’re halted — or worse, eliminated — after an election defeat, all that efficiency goes out the window. In the end, political durability matters most.
It’s important for those who care about the climate not to miss the forest for the trees here. The end goal, after all, isn’t the creation of a carbon tax regime but the reduction of Canada’s greenhouse gas emissions in a way that maximizes benefits and minimizes costs. As we’ve seen, that calculation must include both the economic and political costs. There’s still a path for the Trudeau Liberals to fight (and maybe even win) the next election on climate policy. But if that’s going to happen, they must remember the people they need to please are the voters, not the economists.
Comments
Advertise big time. Heir Harper & his clowns put big bucks into advertising the 2008 bailout all the way up to 2015. They used targeted ads at swing ridings & groups using social media.
Advertising is needed in modern elections, but not all policy measures are created equal. If you're advertising for a measure that our culture finds fundamentally difficult to swallow (and our culture is very anti-tax, a position ironically fostered in part by the very economists backing the carbon tax), your money will be spent very inefficiently.
It should be noted that these economists who say a carbon tax is efficient, are the same economists who did not predict the 2008 financial/property crisis and who don't seem to have a problem with the property/rent prices right now. They probably also argued against stimulus measures during Covid, later claimed that the surge in inflation was caused by that stimulus rather than by supply train issues, war, and greedflation as was actually the case, and in general are just dead wrong about a whole bunch of stuff.
To make these assertions you'd have to review Mark Jaccard's record. He was the chief economic advisor to the BC government that instituted North America's very first carbon tax.
That was in 2007. A decade later he altered his opinion after seeing the political ramifications of a "new tax" imposed on the people in jurisdictions where opponents had the time to develop their opposition.
BC still has a carbon tax, and it's not seen as too much of a problem because it's quite low in the public's awareness. The BC government wisely performed a detailed analysis after high fuel prices at the pump were blamed on fuel taxes by the industry and anti-tax organizations. The government crowed so much about the results, which proved industry jacked the prices way beyond reason, and the anti-carbon tax noise went relatively quiet.
Jaccard now recommends regulation. And, of course, new regs need to be accompanied by advertising and positive PR in anticipation of the protest by vested interests.
Looking back, Trudeau could have done more direct action, seriously beefed up subsidies for renewables or even formed federal-industry partnerships in projects, provided grants in the double digits for domestic electrification, partnered with First Nations who have the land and motivation to become major producers of clean power, and so forth. He chose a simple carbon tax, treating it like a magic bullet, and took four years to implement it because he was negotiating appeasement with the provinces. Now he's lopping off bits and pieces.
In my view, this is the result of a lack of initial bold federal action backed by generous forethought and analysis again backed by excellent PR. It was timid and tentative, at least in comparison to the rash decision to buy a pipeline.
What's really annoying is the NDP is now jumping on the runaway train against the carbon tax without giving a hoot about the ramifications. The NDP are not proposing any new policies to replace it; they are acting rashly and in the moment to leverage a popular move to gain political traction and don't seem to give a flying doughnut about climate solutions rather than showcasing their specialty - hounding oil company executives about their sins without developing a mature set of workable climate action policies themselves. Jack Layton did that in 2007 and took down another Lib-NDP minority government. He paved the way for a decade of damaging Conservative rule that still hasn't been adequately repaired even to today.
The Libs and NDP are doing an exemplary job in working to defeat themselves in the next election, mainly by eroding the support of mainstream voters who want climate action, a cleaner economy and strong social programs.
To many voters and some otherwise reasonable pundits, punishing the Libs / Trudeau is more important than anything else. They will let Poilievre win in two years without really thinking through what that means. Some will claim that won't be so bad, after all we survived Harper.
Well, Poilivre isn't Harper, and a decade of change has gone by since Harper's defeat. Conspiracies, convoys and extremist violent narratives now permeate the conservative lexicon. You may succeed in punishing the Libs -with the NDP's assistance - but that will be a temporary revenge and will likely produce much regret as an angry government takes out radical change on anything remotely progressive.
I'd love to vote for a mature Green Party that is ready to take the reins, or be strong enough to back or coalesce with other progressive parties to form a government, but the Greens are far, far from ready to govern, let alone hold adult conversations with their fellow progressives.
In my riding the only solution is still ABC 123. Do the math to keep the barbarians out of Ottawa.
Please explain how any sentient, tax-filing Canadian can be unaware of the Carbon levy rebate. Is it your belief that a significant fraction suffer from invincible ignorance? If so, then that's a far more serious problem than any backlash against the Carbon taxes.
Fawcett: "at least one Canadian economist who saw this all coming: Mark Jaccard. Back in 2018, the SFU professor wrote an op-ed in the Globe and Mail that stands out today for its prescience and perspicacity."
Would that be the same prescient and perspicacious economist who before the last election in 2021 absurdly proclaimed the Liberals the most climate-sincere party on offer?
"Climate crisis and elections: An urgent time for honesty" (National Observer, 2021)
https://www.nationalobserver.com/2021/09/14/opinion/climate-crisis-elec…
Ranking the parties on "climate sincerity", Jaccard ludicrously awarded Trudeau's plan-to-fail, pipeline-buying, Big-Oil subsidizing Liberals first place. Followed by the deni-osaur Conservatives. With the NDP and Greens trailing.
The Environment Commissioner's recent audits tell a different story. For years, Jerry DeMarco has repeatedly called out the Liberals on their "policy incoherence" on climate.
“This is not my first time sounding the alarm and I will continue to do so until Canada turns the tide."
"Canada on track to miss climate targets, again" (National Observer, Nov 10 2023)
"Cracks appear in Liberal-NDP alliance as Singh condemns Ottawa's climate 'failure'" (CBC, 2022)
Jaccard also did a 180° on TMX — and thus on oilsands expansion, which blows up Canada's climate targets.
Incidentally, the Environment Commissioner supports carbon pricing:
"DeMarco said putting a price on carbon is a sound approach that delivers key emissions reductions. ECCC representatives said carbon pricing will account for up to a third of Canada's emissions reductions by 2030." (National Observer)
As does the Green party:
"Prime Minister Justin Trudeau’s decision to implement a three-year exemption on the carbon price applied to home heating oil breathed new life into Conservative Leader Pierre Poilievre’s long-standing 'Axe the Tax' campaign and attracted the ire of premiers across the country, Green MP Mike Morrice said.
"'We've got to be honest with Canadians that carbon pricing is the most economically efficient way to tackle the climate crisis and needs complementary measures as opposed to eroding what we know works. Unfortunately, it's being used as a scapegoat by some politicians who aren't willing to talk about the subsidies, the over $20 billion going to the oil and gas industry.'" (National Observer)
The Liberals' endless fossil-fuel subsidies undermine carbon pricing. Policy incoherence.
Is the fault in the carbon "tax" (levy) or in the Liberals' failure to sell it?
Let's not blame the carbon "tax" for the Liberals political miscalculations.
Around the world, several jurisdictions including B.C. have had carbon pricing for decades.
Fawcett: "The carbon tax’s visibility is its biggest vulnerability, one that populist politicians on the right have exploited relentlessly."
Populist politicians on the right and Postmedia columnists have misrepresented the carbon "tax" relentlessly, routinely ignoring the rebate side of the program, and exaggerating its inflationary power.
Ottawa does not keep a cent other than GST. All carbon levy revenues are returned to the province of origin. 90% to households. Some households may even come out ahead with rebates.
As Fawcett notes above, the Liberals' communication on rebates has been woeful:
"And even fewer would have expected the federal government responsible for implementing a carbon tax to fail so completely in communicating the existence of a rebate to voters."
On climate policy, the Liberals have repeatedly failed to anticipate criticisms and counter misrepresentations. They react to dishonest criticism instead of getting out ahead of the issue. The Liberals let the opposition define the issues and misrepresent their climate policy. All too often, the Liberals have simply failed to show up.
By granting an exemption on heating oil, the Liberals have effectively conceded that the carbon levy is onerous and punitive, thus confirming the opposition's affordability arguments. Even though the Bank of Canada says the carbon "tax" accounts for a small fraction (0.15% annual) of inflation. Other factors play a far bigger role in inflation. The Liberals failed to make the case.
Rightly or wrongly, the Liberals are seen to be treating regions unequally and playing favorites — in a desperate attempt to shore up their sagging political fortunes in Atlantic Canada. A gift to the opposition.
Fawcett rightly calls it a "baffling decision".
Don't kid yourself. Regulations get plenty of pushback too. Think O&G industry emissions cap. The Clean Energy Regulation (CER).
Harper over-reached by gutting environmental regulations and auditing green groups. Harper's regressive measures fuelled pushback by First Nations, enviros, scientists, and ultimately by voters.
Regulation is not bullet-proof either. Like carbon pricing, regulations can also be overturned by environment-hostile, business-friendly governments.
Lest readers be misled, Jaccard does not oppose carbon pricing. He has long advocated for a mix of both carbon pricing and regulation. But he is extremely sceptical about relying on carbon pricing alone:
"Carbon taxes and caps may be most effective in economic theory, but smart regulation will produce better climate policy for our political reality." (Policy Options, February 2, 2016)
"The reality is that significant emissions reductions will happen only if we rapidly switch to zero- and partially-zero-emissions technologies. Fortunately, these are now commercially available. But they won’t be widely adopted unless technologies that burn coal, oil and natural gas are phased out by regulations or made costly to operate by carbon pricing.
"… This is why, if he has survival instincts, Trudeau won’t depend solely on carbon pricing. Instead, he will do what serious jurisdictions do: regulate. And this is what we’ve done in Canada, although many fail to see it.
"… Yes, encourage emissions pricing. But heed the evidence on the effective and relatively efficient role that well-crafted regulations can play in driving the major technological and energy transition we so desperately need."
Lest we forget: Many "conservatives" and industry leaders are opposed to climate policy, period. They oppose any and all climate measures, carbon pricing or regulation. They even deny the basic science.
We need to use all the tools in the toolbox. But whatever tools we use, advocates, including government, must justify and defend them. Every environmental and climate action must be sold to voters.
Few environmental policies and regulation can survive undefended.
Taxes and regulations do work but have their limitations. What's missing is direct federal involvement in projects and better quality underpinning of the electrification of the domestic economy through larger subsidies for renewables and larger rebates for consumers and businesses to dump fossil fuels for modern electric equipment.
I can't help but wonder if the eminent economists preference for a society wide tax, rather than regulations on the polluting industry (the polluter pay principle) doesn't have something to do with neoliberal ideology.
This fantasy of the 'invisible hand'...or 'ghost within the machine' of modern deregulated capitalism has about run its course. It's people who make policy, their representatives who decide which courses of action are the most 'efficient'...or....the most pleasing to corporations. For over 40 years now its been free trade, open borders, low taxes and everybody on the make or the take for that almighty dollar.
Unregulated, privatized capitalism turns everything into a commodity, including carbon.
Perhaps its time to take the profitability out of carbon. We even have solar companies offering a discount if you let them have your carbon credits.....although anyone who understands greenhouse gas emissions should know by now you can't lower them by letting someone else use the carbon your solar array saves, to emit more carbon elsewhere. There are no borders when it comes to greenhouse gas emissions.
There's a lot of none sense to give up, if we really want a different future. This month's issue of ALBERTA VIEWS, has some interesting stats on how much economic benefit green technologies bring with them. It also has some astounding figures on how many jobs Fossil Fool companies intend to replace with AI in the coming years.........in order to stay profitable.
Perhaps it is time for judicious SUBSIDIES..to our solar and wind companies....and the individuals who support them by transitioning off Fossil Gas. Perhaps it is time for carbon taxes on industries that emit, and lay off workers in aid of higher profits. Perhaps it is time for greater regulation in all kinds of places.
I'm not saying get rid of the carbon tax...........but let's grow up and do the math. A flat tax is unfair. Setting it up so individuals bear the major responsibility for energy sources they have to use, energy sources that still have a monopoly hold on most citizens energy needs, looks unfair. Maybe it would be smarter, in the short run, to tax carbon at the source much more stringently....and give the subsidy to rural people and others that have no alternative but to burn those poisons?
One thing is sure: We won't get out of the present mess...........let alone transition off fossil fuels....by refusing to consider every tool in our toolbox. OUR FAMILY, FOR ONE, IS WAITING FOR BETTER SUBSIDIES TO THOSE HEAT PUMPS....when it arrives, we'll be fossil gas free in a month or two.
"Waiting for better subsidies..."
Amen to that.
What's missing here is that subsidies and regulations are a dangerous game. What will a right-wing govenment subsidize in the name of climate policy? Carbon Capture and Storage, Small Nuclear Reactors, Hydrogen derived from fossil fuels - in short everything that keeps its wealthy backers happy, so they can continue to derive more wealth from their entrenched investments rather than give way to the ground-breaking innovation in renewables and storage we need to avert climate catastophe. And what will a right wing government regulate? Nothing that gets in the way of allowing the industries their wealthy backers have invested in, to continue to pollute and create more GHGs. And they will dismantle any such regulations already in place. We need to stay the course on carbon pricing and make sure the rebate system is well understood, and further, make sure upfront costs to convert to low carbon alternatives can be adequately financed by all sectors of society, especially those less well off.
And now is the time for the Liberals to approach Biden about being part of a North American inflation reduction act. It's their only way out of this mess.