Fifteen months ago, the Ecofiscal Commission premiered, with a few of Canada’s most renowned self-appointed commissioners making it their goal to reduce carbon emissions by creating a more effective tax system. By either of those two criteria, the work could be rechristened the EcoFailure Commission, since it has not made any progress on either.
How can I call it failing, when governments across the nation are poised to impose taxes on carbon, the widely used tool of commission chair Christopher Ragan and his merry gang of Ecofiscalists? First, the commission has abysmally failed to convince governments to offset higher carbon taxes with lower income taxes, which has left us with tax grabs rather than a more effective tax system. Second, it has didn’t convince ordinary Canadians from the have to change their behaviour, without which carbon taxes won’t be high enough to alter anything, particularly when oil prices are collapsing and auto and gasoline sales are soaring. Third, the commission has ignored technology, the real long-term method to increase energy efficiency, because of its single-minded devotion to controlling carbon emissions by trying out the price system.
To reduce petroleum demand in this country would require either taxes that raise prices well above their 2014 highs or a recession in incomes so that Canadians could not afford to consume at current rates. Gasoline prices today in many areas are Thirty to forty cents a litre below their 2014 highs so, by itself, a carbon tax would have to boost prices by well more than that to lower consumption (barring a recession). There is no government in Canada publicly considering a gasoline tax of fifty to 60 cents a litre. That would be political suicide.
The current carbon tax of a few cents a litre being proposed in Alberta, Ontario and Quebec, and already essentially in B.C., are the modern equivalents of the papal indulgences issued during medieval times: a token paid to appease the conscience for having committed a sinful activity. As far as that carbon taxes mislead people into thinking they are alleviating a problem while still burning fossil fuels, they may worsen their desired outcome.
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The Ecofiscal Commission doesn’t even hint at the tax increase that eventually is going to be necessary to meet its carbon ambitions. It trumpets studies that make believe you appraise the responsiveness of emissions to carbon taxes, and that we know the future emissions targets Canada is committed to achieving. But the commission will not meld the two to generate a rough estimate of what it’ll cost you Canadian consumers to hit the carbon target. This silence probably reflects the needed tax increase could be enormous, taking the whole concept of a carbon tax off the table immediately. There is much that’s disingenuous about a Trojan Horse plan that aims to first get everyone onside using the concept of a carbon tax, simply to then slowly reveal the magnitude that will be required.
The Ecofiscal Commission doesn’t even hint in the tax increase that eventually will be necessary to meet its carbon ambitions
The real work the commission ought to be undertaking is the heroic task of convincing Canadians they need to accept sharply higher energy taxes to fundamentally alter their behaviour. Instead, the EcoFailure brain trust simply supplies a convenient intellectual cover for governments to take part in a tax grab that does absolutely nothing to address the long-run trend of rising fuel consumption. Convincing Ontario Premier Kathleen Wynne to raise taxes is child’s play, not a signature achievement.
Governments no more even pretend to be designing a far more efficient tax system, unlike the way in which B.C. did when it offset higher carbon taxes with lower income taxes. Instead, cash-strapped governments in Alberta, Ontario and Quebec are merely raising carbon taxes with no offsetting cuts. And let’s be clear: Revenue neutrality means the same decrease in other taxes, not an equal hike in paying for environmental surroundings, as Rachel Notley’s government claimed in Alberta’s budget. Only within the warped realm of NDP accounting is really a tax hike combined with more spending “revenue neutral.” Instead of being outraged that governments are extremely brazenly distorting its ideas, the EcoFailure Commission meekly watches in silence, lacking the courage of its own convictions that the tax system ought to be designed more efficiently.
The timidity of governments in raising carbon taxes could also reflect the fact that they are fully aware the only real solution will come from technology (just like the means to fix traffic jam is driverless vehicles, not the road tolls Ragan advocates). However, as Steve Johnson noted in the book Where Good Ideas Originate from: The Natural History of Innovation, we lack a good theory of how innovation occurs.
Johnson argues that, unlike assumptions, innovation might not be primarily driven by profit or high costs. Instead, innovations are most likely in the future in clusters as well as in areas researchers already are working on (“the adjacent possible” – extensions of the items innovators are already working on – not “lightning bolt” ideas without warning). This is encouraging since there is lots of work actively happening in lessening greenhouse gas emissions, including within the oil industry. Until such innovations occur, governments should drop the pretense that carbon taxes are about anything except raising their very own revenues.
Philip Cross may be the former chief economic analyst at Statistics Canada.
