Trudeau shatters myth of ‘ideal’ carbon tax

For several decades now, some economists have supported the idea of carbon taxes. An ideal carbon tax, they argue, is uniform across the economy, fuel/technology neutral, in lieu of—not atop of—additional regulations and subsidies, and revenue neutral.

Others, including myself, have argued that such an ideal carbon tax can never be implemented or maintained because of something called “public choice theory,” which holds that policymakers are not neutral, objective, dispassionate problem-solvers but rather self-interested agents who will enact policies primarily to advance their political interests, which guarantees corruption of “ideal” policies. If one understands public choice theory, one must understand that the ideal carbon tax is a myth, which would not survive its first contact with real-world political actors.

For example, in a 2017 study, I showed that none of Canada’s provincial carbon taxes were implemented in anything close to the ideal form (with the exception of British Columbia’s carbon tax, for its first few years). Still, many economists embraced the federal carbon tax, sure in the possibility of realizing the ideal form.

But last month, Prime Minister Trudeau elegantly ended the debate about the potential for ideal carbon taxes to survive in the political wilds and announced his government would postpone an expansion of his signature carbon tax. As you’ve probably heard, the government will suspend the tax on heating fuel used primarily in Atlantic Canada and provide additional subsidies to Atlantic Canadians by doubling the rural carbon tax rebate to help them switch from heating with oil to electric heat pumps.

This is a three-way violation of the “ideal carbon tax” concept beloved by some economists. Trudeau has made the federal carbon tax non-uniform, ended technological neutrality and—by exempting a swath of emissions—made it less efficient and effective. Again, in a political world, political self-interest will always lead to the corruption of ideal regulatory or tax regimens. Even the University of Calgary’s Trevor Tombe, a diehard fan of the carbon tax, now suggests it might be the beginning of the end for the entire idea of carbon taxes. The carbon tax is dead, he writes. Or at least, its days may be numbered.

Of course, Atlantic Canadians get a sweet deal—a three-year tax moratorium and more money in their pockets for heating equipment changes. On the other hand, the Prairie provinces once again receive the back of the prime minister’s hand, cementing (not that it needs much cementing) the perception that he dislikes the Prairies and seeks to punish them for having the temerity to resist his efforts to loot them of natural resource revenues and provincial sovereignty. Not only will Prairie folk not get a break on carbon taxes on their heating fuel (primarily natural gas) but they also won’t get increased rebate cheques to help them transition to lower-emission forms of heating and cooling.

Prime Minister Trudeau’s move to pervert the federal carbon tax even farther from the economically ideal model proves yet again that such ideal forms are always inherently doomed to corruption by the political process. The harmful impacts of a carbon tax, unmitigated by those various “ideal” caveats, is landing on the pocketbooks of the public, and one suspects the prime minister knows it. He should consider stealing an issue from his leading political rival and take an axe to the tax he created, rather than leave that chore to his successor.

Author:

Kenneth P. Green

Senior Fellow, Fraser Institute

Related Topics:#CarbonTax #FraserInstitute #IdealCarbonTax #KennethGreen

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Trudeau Government Capping the Canadian Economy (and Energy Industry) Just to Impress International Agencies

Published on November 7, 2024

Todayville

From EnergyNow.ca

By Kasha Piquette

The incoming Trump Presidency has promised to “unleash American energy” with plans to “free up the vast stores of liquid gold on America’s public land for energy development.” This week, the Trudeau government unveiled the draft details of its plans for a cap on greenhouse gas emissions from the Canadian oil and gas sector. These proposed regulations would cap all greenhouse gas emissions equivalent to 35 percent below levels in 2019 with the lofty goal of achieving a 40-45 percent reduction by 2030.

It is a plan that the province of Alberta and others contend would be a cap on production and cause elevated prices for consumer goods across Canada, cost up to 150,000 jobs and reduce national GDP by up to C$1 trillion ($720 billion).

These proposals would make Canada the only oil and natural gas-producing country to attempt an emissions cap on such a scale. The regulations propose to force upstream oil and gas operations to reduce emissions to 35 percent less than they were in 2019 by 2030 to 2032. Notably, while hydrocarbon production increased from 2019 to 2022, Canadian emissions from the sector declined by seven percent.

Perhaps significantly, and much to the apparent annoyance of Alberta’s Premier, the Federal announcement was made slightly ahead of the UN COP29 Climate Summit in Azerbaijan. Per the Paris Agreement, each country submits its climate ambitions to UN as National Determined Contributions (NDCs). However, the federal government has also passed the Net Zero Accountability Act, which, by December 1st, 2024, could require even more aggressive reduction targets for 2035. Does this mean that the federal government may be positioning itself to announce even more ambitious emission targets – all to be announced at that conference?

It is unclear whether, how and in what form, the emissions cap will come into effect. With the next federal election slated for late October 2025 and polls that show the current Liberal-NDP coalition government to be far behind the opposition Conservatives, the federal carbon tax and the proposed emission cap have an uncertain future.

Other business interests have voiced concerns about Canada’s increasingly discordant, incoherent climate policies and regulations, which have caused the Canadian oil and gas sector to be at a competitive disadvantage in the global energy market. Clearly, Alberta considers that the Federal government has, once again, overstepped its constitutional bounds with the proposed emissions cap and, along with its victorious Supreme Court challenge against the Impact Assessment Act, has vowed to launch more court challenges. Alberta and other Provinces have contended that, with regional exemptions, the federal carbon tax is being applied unfairly as a patchwork of standards with Alberta, New Brunswick, Saskatchewan, Ontario and Nova Scotia, and the opposition Conservative party, mounting a growing chorus against the Liberal government’s broader price on carbon. By contrast, the proposed regulations for an emissions cap have been aimed specifically at one industry sector – one that is largely concentrated in western Canada.

Meanwhile, Canadian oil production, aided by the new export capacity of the TransMountain Pipeline completed this year, has grown to a record 5.1 million barrels per day making Canada the prime (60%) source of US crude oil imports in 2023. Meanwhile, the industry has been engaged in considerations for the potential development of carbon capture and storage (CCS) to trap greenhouse gasses underground. However, this untested technology would cost billions, needs to be proven on a larger scale and requires industry cooperation combined with all levels of government support.

The Federal announcement, and the hostile reaction from Alberta and possibly other oil-producing provinces, mean that once again, Canadian investment in the oil and gas sector will be confronted with ever more uncertainty as they encounter time-consuming court challenges. These competing political agendas ensure that major Canadian investment decisions will, once again, be deferred while other international jurisdictions race to develop their hydrocarbon export capabilities, investments that are unencumbered by any emissions caps.

Canadians need to consider carefully how these policies and debates are affecting our energy security and standard of living as Canada. In addition to carbon pricing, Canada has already promulgated regulations for EV mandates in the transportation sector, policies that have required tens of billions in subsidies. It has also introduced the complex clean fuel standard and the proposed national clean electrical standards. These policies are affecting not just Canada’s productivity, GDP and exports. By attacking the Western provinces, Ottawa is unnecessarily creating regional tensions and a less politically stable federation. We need to think about how co-operative federalism can be re-established in ways that account for the basic needs of all Canadians – and not just accommodate arbitrary targets for emissions designed to impress international agencies.

Kasha Piquette is an Alberta-based strategic energy advisor and a former Deputy Minister of Alberta Environment and Protected Areas.

Economy

Ottawa’s new ‘climate disclosures’ another investment killer

Published on November 3, 2024

Todayville

From the Fraser Institute

By Matthew Lau

The Trudeau government has demonstrated consistently that its policies—including higher capital gains taxes and a hostile regulatory environment—are entirely at odds with what investors want to see. Corporate head offices are fleeing Canada and business investment has declined significantly since the Trudeau Liberals came to power.

According to the Trudeau government’s emissions reduction plan, “putting a price on pollution is widely recognized as the most efficient means to reduce greenhouse gas emissions.” Fair enough, but a reasonable person might wonder why the same politicians who insist a price mechanism (i.e. carbon tax) is the most efficient policy recently announced relatively inefficient measures such “sustainable investment guidelines” and “mandatory climate disclosures” for large private companies.

The government claims that imposing mandatory climate disclosures will “attract more private capital into Canada’s largest corporations and ensure Canadian businesses can continue to effectively compete as the world races towards net-zero.” That is nonsense. How would politicians Ottawa know better than business owners about how their businesses should attract capital? If making climate disclosures were a good way to help businesses attract capital, the businesses that want to attract capital would make such disclosures voluntarily. There would be no need for a government mandate.

The government has not yet launched the regulatory process for the climate disclosures, so we don’t know exactly how onerous it will be, but one thing is for sure—the disclosures will be expensive and unnecessary, imposing useless costs onto businesses and investors without any measurable benefit, further discouraging investment in Canada. Again, if the disclosures were useful and worthwhile to investors, businesses seeking to attract investment would make them voluntarily.

Even the government’s own announcement casts doubt that increasing business investment is the likely outcome of mandatory climate disclosures. While the government says it’s “sending a clear signal to corporate boards and shareholders, at home and around the world, that Canada is their trusted partner for putting private capital to work in the race to net-zero,” most investors are not looking to put private capital to work to combat climate change. Most investors want to put their capital to work to earn a good financial return, after adjusting for the risk of the investment.

This latest announcement should come as no surprise. The Trudeau government has demonstrated consistently that its policies—including higher capital gains taxes and a hostile regulatory environment—are entirely at odds with what investors want to see. Corporate head offices are fleeing Canada and business investment has declined significantly since the Trudeau Liberals came to power. Capital per worker in Canada is declining due to weak business investment since 2015, and new capital per-Canadian worker in 2024 is barely half of what it is in the United States.

It’s also fair to ask, in the face of these onerous polices—where are the environmental benefits? The government says its climate disclosures are needed for Canada to progress to net-zero emissions and “uphold the Paris climate target of limiting global warming to 1.5°C above pre-industrial levels,” but its net-zero targets are neither feasible nor realistic and the economics literature does not support the 1.5 degrees target.

Finally, when announcing the new climate disclosures, Trudeau Environment Minister Steven Guilbeault said they are an important stepping stone to a cleaner economy, which is a “major economic opportunity.” Yet even the Canada Energy Regulator (a federal agency) projects net-zero policies would reduce real GDP per capita, increase inflation of consumer prices and reduce residential space (in other words, reduce living standards).

A major economic opportunity that will increase business investment? Surely not—mandatory climate disclosures will only further reduce our standard of living and impose useless costs onto business and investors, with the sure effect of reducing investment.