Boessenkool and Ragan: The Liberals need have faith that their carbon tax will do its job.
We support a carbon tax. But the Liberals couldn't resist loading theirs up with tens of billions of popular but wasteful extras.
By: Ken Boessenkool and Christopher Ragan
The headlines following the newest federal government climate plan were all about the carbon tax rising $15 per tonne per year starting in 2023 and reaching $170 per tonne by 2030. This plan was widely praised as bold and ambitious.
We agree. One of us is a conservative political and policy advisor. The other is a policy-minded academic economist. We share a preference for market-based policies, especially ones that achieve their objective at low cost. Like a carbon tax.
As urged by Canada’s Ecofiscal Commission, which one of us chaired and the other advised, a steadily rising carbon tax should be at the centre of any plan to meet our emissions-reduction targets — because it is the lowest-cost way to achieve those reductions.
The federal plan states, “A carbon price establishes how much business and households need to pay for their pollution. The higher the price, the greater the incentive to pollute less, conserve energy and invest in low carbon solutions.”
We couldn’t agree more, and we commend the federal government for designing a climate plan which relies as much as it does on a rising carbon tax (or price).
But there was a second message from the Ecofiscal Commission that is also important. The Commission examined which “complementary” policies —– ones that don’t involve carbon pricing — should be part of an efficient and growth-enhancing climate plan.
For example, some “gap filling” policies are necessary for those situations where emissions are simply too difficult to tax. A case in point: Methane emissions usually come from leaks and accidents, and well-designed regulations to reduce the likelihood of such events will reduce emissions more effectively than will a carbon tax.
Ecofiscal cautioned, however, that many complementary policies are much more costly than a carbon tax. For example, it found that subsidizing the purchase of electric vehicles is a very costly way to reduce emissions. It also found that some policies, such as mandating coal phaseouts, may be unnecessarily costly if a rising carbon tax would lead to their eventual shuttering anyway.
In our view, the feds didn’t take this second Ecofiscal message to heart. The plan contains all kinds of other polices designed to encourage us to pollute less but that are probably unnecessary. Examples include cash incentives for electric vehicles and new fuel mandates. Do we really need these if the rising price of gas will drive consumers to buy cleaner vehicles and the energy industry to produce less carbon-intensive fuels?
There are also several policies to encourage us to conserve energy. Things like home retrofit programs and regulations for new buildings. Are these required if rising heating costs will naturally provide powerful incentives for renovating existing structures and for designing more efficient new ones?
We counted 104 initiatives in the federal government’s new climate plan. Sixty-three of these are things the government should be doing, such as financing basic research, funding transition programs from old jobs (coal plants) to new jobs (biofuel plants), and retrofitting the government’s stock of buildings. All good.
As for the policies that are unnecessary in the presence of a rising carbon price? We counted 26, and they involve spending serious money — $41 billion over 10 years, with half being spent in the first three years. That’s $20 billion of taxpayers’ money spent on things that the rising carbon tax will do anyway. That’s a waste.
Finally, the plan also contains several new or stiffened regulations that create additional red tape for Canadian businesses. Many of these are intended to change behaviours that are likely to change anyway in response to a rising carbon tax.
We congratulate the government on having the confidence to put forward an ambitious and bold plan to increase the carbon tax. The feds obviously believe, as we do, that a carbon tax harnesses the power of markets and private behaviour to reduce emissions in the most efficient way.
But there is an irony in the plan as well. As much as the government has now invested in the importance of carbon pricing, it couldn’t quite resist the temptation to throw in all sorts of other expensive policies as well.
This overall plan would have been even better and bolder — more efficient, less expensive and with less red tape — if the government had shown the confidence to really let the carbon price to do its job.
Ken Boessenkool is a conservative political and policy advisor and is the J.W. McConnell Professor of Practise at McGill University’s Max Bell School of Public Policy. Christopher Ragan is the former Chair of Canada’s Ecofiscal Commission and is the director of the Max Bell School.
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