The Parliamentary Budget Officer made an error in its carbon-pricing reports that are frequently cited in the Conservative Party's “axe the tax” attacks, and the Liberals want a more prominent correction issued.
The PBO quietly published a note on its website on April 17, admitting its economic analyses of the consumer carbon price in 2022 and 2023 erroneously included the impact of the industrial carbon price, too.
Liberal MP Ryan Turnbull, parliamentary secretary for the Finance Minister, wrote to the PBO requesting a “more detailed public correction,” adding that “correcting the record on your analysis of the fuel charge is necessary to maintain the integrity of your office.”
“To be honest, it's irresponsible,” said Chris Bataille, energy and climate policy analyst, in a phone interview with Canada’s National Observer. “It should be more prominent.”
The PBO plans to publish an updated analysis in the fall.
The PBO’s reports purported to analyze the impacts of the consumer fuel charge and rebates and concluded the carbon price’s impact on economic growth and jobs could mean up to 80 per cent of families won’t break even with rebates. The federal Conservatives seized on this talking point to counter the federal government’s assertion that eight out of 10 households will receive more money back through fuel rebates than they are taxed. For the last year, Conservative Leader Pierre Poilievre and his caucus have cited the PBO report as a reason to “axe the tax.”
But Poilievre has not been clear on whether a Conservative government would also axe the industrial pricing system.
By including the industrial system in the analysis, Turnbull and experts on carbon pricing say the results are skewed and do not represent what the PBO initially set out to study.
“By incorporating the impacts of the industrial Output-based Pricing System (OBPS) for industrial polluters, the economic impacts projected in your report certainly overestimate the real costs of the fuel charge,” wrote Turnbull.
This is a “big error,” said Bataille, an adjunct research fellow at the Columbia University Center on Global Energy Policy, in an interview with Canada’s National Observer.
“If a private consulting firm was responsible for that error, it would not be doing that work again,” he said. Bataille was a lead author for the Intergovernmental Panel on Climate Change’s Sixth Assessment Report.
“The numbers that are being bandied about about the effects of the fuel levy are drastically overestimated at this point in time” he added.
Industrial pricing has a potentially larger economic effect because it affects large, critical industries — such as oil and gas, mining, cement and pulp and paper — compared to the fuel charge on individuals. While the levy for individuals certainly has implications for the economy, they are not nearly as large because the coverage is more on the consumer, said Trevor Tombe, a professor of economics at the University of Calgary, in an interview with Canada’s National Observer.
Even before this revelation, the PBO’s modeling was criticized by the environmental community and many researchers, because it only models the cost of environmental policies and not the benefits associated with limiting global warming and its damages.
Nicholas Rivers, a carbon price expert and professor at the University of Ottawa, said it is concerning how long the PBO’s mistaken analysis has been circulated and how influential it has been in Canadian politics. But he isn’t shocked there was a mistake in the model.
“There's always the concern that the long computer code that someone had to write had flaws,” said Rivers in an interview with Canada’s National Observer.
All these models make a lot of assumptions and Rivers thinks they shouldn’t be treated as definitive, but rather, that many different models should be run to better triangulate and understand the impacts of different policies.
This situation “really reinforces that you should never hang your hat on a single paper or a single piece of analysis as though it is the end of the story,” said Tombe. “This is a complicated policy that requires real, rigorous research from lots of independent entities.”
The PBO told Canada’s National Observer it is not clear how the results of its carbon price analyses would be affected if the output-based pricing system was excluded.
The industrial pricing system is going to account for a large chunk of Canada’s greenhouse gas emission reductions by 2030, according to analysis done by the Canadian Climate Institute.
— With files from the Canadian Press
Natasha Bulowski / Local Journalism Initiative / Canada’s National Observer
Comments
PBO and P.P. in cahoots?
No proof yet, but make me wonder how such an error and lame walk back could occur.
I wrote to the PBO (about a year ago) , and again a couple weeks later with a follow up, for some explanations about their calculations and got no reply whatsoever.
I'm sure P.P. will already have posted a video alerting his over enthusiastic but ill-informed followers that his "ax the tax" slogan was always just teetering on political bravado, rhetorical over reach, and environmental disregard, much like the CPC's entire house of cards. /s
The PBO's analyses of the economic impacts of carbon pricing in Canada are based on models.
Models are built on assumptions.
The output is only as reliable as the inputs.
Given right-wingers' allergic reaction to models in the climate sphere, you might think something of the same scepticism would be applied to the PBO's reports on carbon pricing.
But because the PBO reports on carbon pricing tell Canadian "conservatives" what they want to hear (figures they freely misrepresent, anyway), they swallowed the numbers at face value without a murmur.
Why are the PBO's reports not subject to third-party analysis or peer review?
Canadian universities and think tanks have a small army of economists at their disposal. You would think that some bean counter somewhere would put the PBO's assumptions and algorithms to the test.
Unfortunately, the PBO does not publish its assumptions and algorithms, as far as I know. PBO reports on carbon pricing include the results only, not the methods.
In the meantime, "conservatives" have made enormous political mileage on unreliable carbon pricing reports. Not the end of the world, but it may spell the end of carbon pricing in Canada.
A debacle that may sink the Liberals' ship in the next election.
Good comment, especially on peer review.
I would be a little more circumspect regarding making generalizations about models. The scientific method as it relates to climate change includes deep calculations to define limitations, especially for proxies. They are further backed by observed effects that are tested over and over, and all methodologies are published and invite review.
The PBO's assumptions were obviously not subjected to economic rigour to the same level as the scientific method regarding climate science. The report's methodology should be published in the appendices, and that also needs to be subjected to independent peer review. The PBO is too important of an office to not be put through independent scrutiny.
"Industrial pricing has a potentially larger economic effect because it affects large, critical industries — such as oil and gas, mining, cement and pulp and paper — compared to the fuel charge on individuals."
Another analysis that deserves a second look.
The recent study by the Canadian Climate Institute was widely reported, but not widely fact-checked. No one questioned its assumptions. Climate journalists reported the results at face value.
"The first rigorous analysis attributing emissions reductions to collective and individual climate policies" suggested that industrial carbon pricing would do most of the heavy lifting when it came to reducing emissions by 2030.
"Industrial carbon pricing the top driver of emissions reductions, new analysis shows" (Canadian Climate Institute, 21-Mar-24)
"Between now and 2030, industrial carbon pricing will do more than any other policy to cut Canada’s emissions"
"This analysis clearly demonstrates that climate policy is delivering results—with industrial carbon pricing leading the pack. Robust large emitter trading systems are fundamental to any credible climate policy package in Canada."
https://climateinstitute.ca/news/industrial-carbon-pricing-the-top-driv…
In reality, industrial carbon pricing systems in Canada are the Swiss cheese of carbon policy.
Large emitters are subject to output-based pricing systems (OBPS), which price a fraction of total emissions, which effectively means a low carbon price on total emissions. Under Alberta's Technology Innovation and Emissions Reduction Regulation (TIER) pricing regime, major O&G companies pay pennies on the dollar in carbon costs.
The purpose of the OBPS and its provincial counterparts is not to expose heavy emitters to the carbon price, but to shield them from it, so they can remain competitive in global markets. Large industrial emitters, including in Alberta's oilsands, effectively pay a fraction of consumer rates. Under Alberta's Technology Innovation and Emissions Reduction Regulation (TIER) pricing regime, major O&G companies pay pennies on the dollar in carbon costs.
In Alberta, TIER dollars are effectively recycled back to industry to fund carbon capture technology and research. Projects industry should be paying for in the first place.
Federal and provincial carbon pricing systems do not impair large industrial emitters' profits — or reduce their emissions.
"Canada's biggest emitters are paying the lowest carbon tax rate" (Corporate Knights)
"Oil and gas producers pay among the lowest average carbon costs of any sector…
"There's a patchwork of OBPS policies across the country, and some provinces have implemented 'weak' or 'non-existent' systems that have let many big polluters off the hook."
"...Ottawa and most provincial governments grant heavy exemptions to a number of sectors, including O&G, chemicals, cement, steel and mining.
"But generous exemptions mean that how much of a firm's actual emissions are taxed varies widely by province, and, on average, companies end up paying for only 16% of the carbon actually produced.
"[In 2020, Suncor's] average carbon cost was roughly $2.10 per tonne, about one-14th of the full carbon price."
https://www.corporateknights.com/climate-and-carbon/canadas-biggest-emi…
"The impact of a carbon price is greatly lessened by the relatively small proportion of emissions that are actually covered by the price.
"The federal OBPS and AB's TIER system levy the carbon price on roughly 10% of a large emitter's GHGs. At a $50 marginal price, producers pay less than $1 per tonne of CO2 equivalent on their total production." (Corporate Knights)
"Canada needs to make Big Oil pay their fair share" (Corporate Knights, March 7, 2022)
https://www.corporateknights.com/climate-and-carbon/canada-needs-to-mak…
Update:
"Revisions to PBO's carbon tax analysis will 'vindicate' government, minister predicts" (CBC, May 29, 2024)
"Guilbeault says PBO report was 'flawed,' PBO says correction probably won't change conclusion"
"The PBO says that while it intends to publish a corrected version, its original conclusion — that carbon pricing will have a net negative impact on the economy — probably won't change.
"'It is not something that should or will alter the conclusions of the report because the industrial emissions are exempt at 80 per cent,' Parliamentary Budget Officer Yves Giroux told CBC's Power and Politics. 'For big emitters, it is only the 20 per cent that is subject.
"'So overall, the economic impact will still be negative.'
"… Now, in an update to that report, the PBO acknowledges that its economic analysis inadvertently included the industrial pricing system that applies to heavy emitters. The PBO says it will update its analysis in the fall to correct the error.
"But Giroux said that update may not significantly alter the findings because MOST INDUSTRIAL EMISSIONS ARE EXEMPT FROM CARBON PRICING. MAJOR INDUSTRIAL EMITTERS ARE EXEMPTED because they face international competition from businesses that operate in jurisdictions without a carbon price."
https://www.cbc.ca/news/politics/guilbeault-pbo-carbon-tax-1.7218299
So how can Canada's industrial carbon pricing "do more than any other policy to cut Canada’s emissions" if 80% of emissions are exempt?
What says the Canadian Climate Institute?
PP doesn't walk back nor ever will. On Consumers, the Carbon Tax is negligible and really only noticeable on our gasoline purchases. Like PP telling us budget deficits at federal level cause inflation but look what happening, inflation down, budget deficits still up. PP doesn't have a clue yet so many are gaslighted by him.
Actually, the only thing I notice about gasoline is how the price goes up and down like a yo yo, depending on the season and whether a long weekend is approaching. The CT is a stable flat rate, so it's industry itself jacking the price at will.
The other thing is how close the day is when we can finally be done with unavoidable out-of-town trips on crucial family business and park the damned low milage econobox once and for all. Overall, having always lived in walkable neighbourhoods, our gasoline consciousness has never been a big deal.
Now, I am SO not math-friendly. But I used to be responsible for creating and managing a national Ministry computer system, compliments of an excellent consulting firm. It was innovative and cutting edge, getting around all the in-house computer logjams.
It was tested, thoroughly, multiple times, by the consulting firm.
Then we tested it in-house, with whiz-bang computer nerds, who deserved three times their salary, for their minds.
Then we took it out across the country, and field-tested it with raw newbs, after minimal training.
That was over 40 years ago.
We are to believe that a responsible, experienced, expert, knowledgeable computer consulting firm, now, is not capable of double-checking the frigging program?????
I must be old....
:-)