Contributed by Robert Lyman © 2023. Robert Lyman’s bio can be read here.

EXECUTIVE SUMMARY

The Trudeau government is facing controversy over a change that it made to its current carbon dioxide pricing system, colloquially known as the “carbon tax”. The change granted a three-year exemption from carbon dioxide taxes for home heating oil in rural areas and higher carbon tax rebates for people in rural areas, changes that will primarily benefit people living in Atlantic Canada. This ignited both a firestorm of protest from those for whom reducing GHG emissions is the preeminent goal of public policy and a small chorus of appeals from others for similar exemptions. The universal call from those seeking expanded exemptions was that “it’s not fair” that they should have to pay the taxes. Much to the surprise of the government and delight of the Opposition Conservative Party, this slogan has caught on.

Fairness is subjective, of course. The dictionary definition is that it is “the quality of treating people equally in a way that is right or reasonable”. Whatever its merits, a claim that something’s “just not fair” still resonates politically.

The problem with applying the test of fairness to the carbon dioxide pricing system in Canada is that almost nothing about it treats people in Canada equally in a way that is right or reasonable. This is largely due to the design of the regime. It differs by province, subject to federal oversight.

The provincial regimes differ in terms of price levels, coverage, exemptions, use of carbon taxes or emissions trading (Quebec alone has chosen emissions trading), output-based systems, and approaches to revenue recycling. The federal government backstop regime now applies in all provinces except Quebec.

The price of emission permits in Quebec has consistently been well below the carbon dioxide tax rates, and the federal government has taken no action publicly to ensure that Quebec meets the equivalency standard.

The climate dioxide tax rebates range from near zero to 90% depending on the province. That alone is a significant departure from the fairness principle of treating people equally. Much larger payments go to certain groups, notably low-income households and indigenous groups.

The revenues from carbon dioxide taxes are not distributed in the same way in each province.

By 2030-31, most households will see a loss in income in 2030-31 as a result of the federal regime. The loss in income will vary considerably by province and household income.

The Clean Fuel Standard, a regulatory system often criticized as the “second carbon tax” because of its effects on refined oil prices, is projected by some studies to add about 50% to the cost of motor fuels by 2030. The compliance costs would range from $5.6 billion in Alberta to virtually nothing in Nova Scotia and Prince Edward Island. 

According to a 2021 Fraser Institute study, by 2030 the carbon tax will cause a loss of about $1,540 per employed person in Canada by 2030. The economic costs vary by province. Real GDP will decline by the highest percentage in Alberta (2.4%) and Nova Scotia (2.4%) and by the least in Newfoundland and Labrador (1.2%), and Manitoba (1.2%). Canada will lose 184,000 jobs, with the largest losses coming in Ontario (87,000), Alberta (30,000) and Quebec (39,000).

Objectively, there is little about the current carbon dioxide pricing regime that is fair in the sense of providing equal treatment to Canadians. If the policy may be viewed as a garment, the most effective tactic to undermine the cloth of the garment is to identify each aspect of its “unfair” effects one at a time and to pull on them until they unravel. The cumulative effects of these efforts will be difficult for the government to resist, and so each exemption added will further erode the credibility of the regime.