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ANDREW COYNE: Liberals are either backing away from their emissions target, or backing away from carbon tax

Environment Minister Catherine McKenna
Environment Minister Catherine McKenna

Wait, what? What did the federal environment minister just say?

If I heard her right, Catherine McKenna announced there would be no increase in the federally-mandated levy on carbon dioxide (and equivalent) emissions — the carbon tax — beyond the $50 per tonne it is scheduled to reach in 2022. Here’s the quote: “The price will not go up…. the plan is not to increase the price post-2022.”

This strikes me as a remarkable turn of events. The federal Liberals have invested heavily in the idea of carbon pricing as the centrepiece of a national campaign to reduce emissions of greenhouse gases by 30 per cent from 2005 levels — the commitment to which both the past Conservative and the present Liberal government agreed as this country’s contribution to the Paris climate agreement.

And yet it was always apparent that, on present policies, we would not hit our target: rather than fall from 732 to 513 megatonnes by 2030, as promised in Paris, emissions are currently projected to fall only to 592 MT. It was commonly supposed until now that, to close that 79 MT gap, the carbon tax would have to rise beyond $50 after 2022, even if the Liberals were unwilling to admit it.

But now that the environment minister has ruled this out, what are we to think? Either the government in which she serves is not as committed to its commitments as we have been led to believe. Or it is retreating from carbon pricing as the means of achieving them.

The minister’s declaration came in response to a report from the Parliamentary Budget Office estimating how much the carbon tax would have to rise after 2022 to meet the 30 per cent-in-’30 target: by another $52 a tonne, the PBO calculates, bringing it to $102, or roughly double the currently planned maximum.

The news was treated as if it were some kind of bombshell. The Conservatives were reported to have “pounced” on the report in Question Period; my colleague John Ivison described it as providing them with “a storage depot of live ammunition to fire at the Liberals.” Columnist Don Martin agreed, calling it “dream attack material.”

Really? The report was not proposing the carbon tax be hiked to $102 overnight, but over the next eleven years (introduced this April, it currently sits at $20). Yes, as the Conservatives were quick to point out, that is the equivalent of about 23 cents per litre of gas at the pumps, or another 19 cents on top of this year’s four-cent increase. Over eleven years. On today’s national average price of about $1.20 a litre (your province may vary), that’s a total increase of about 16 per cent, or roughly 1.3 per cent per year. Will anyone even notice?

While $102 a tonne may be twice what the Liberals had let on until now, it’s a half to a third of the $200 or $300 the Conservatives have been claiming would be necessary. It’s also likely a fraction of the cost, per tonne of emissions, of the regulatory and subsidy programs the Tories will announce next week: as every study shows, carbon pricing is by far the cheapest way to reduce emissions. And, unlike those costlier programs, the carbon tax comes with an offsetting rebate, which for most families (as the PBO has also calculated) will more than compensate them for the extra cost of the tax.
But that argument might as well be put to the Liberals. Even at $100 a tonne, the tax would only be doing a little over half the work of reducing emissions: economists reckon it would have to be at least $200 a tonne if we were relying on carbon pricing alone. The rest is accounted for by all of the other existing and planned emission-reduction programs, federal and provincial.

If instead the party plans to hold it to $50, then — assuming it still intends to hit its target — it is not even relying on carbon pricing to do half the job, but a quarter or less. So either it is backing away from the target, or it is backing away from the tax.

This is bizarre, since the PBO study finds, not only that carbon pricing is the most efficient means of reducing emissions, but that it is more efficient at higher levels than at lower. While Environment Canada had earlier calculated that the first $50 on the tax would reduce emissions by about 50 to 60 MT at a cost of roughly 0.1 per cent of GDP per year, the PBO estimates the addition of another $52 would cut emissions by a further 79 MT at a cost of less than 0.05 per cent of GDP per year.

You read that right: after eleven years, as the carbon tax rose from $20 to $102, the total hit to GDP — not the annual loss, the cumulative — comes to less than 1 percentage point. If the economy would have grown by 24.3 per cent over that interval (assuming growth of 2 per cent per year, after inflation) without the tax, it would grow by 23.5 per cent with it.
That’s it. That’s what all the fighting is about. And the impact would be even less if the carbon tax were used as a replacement for existing policies, rather than as a supplement. Or if the revenues had been used to cut income taxes, rather than send out cheques to every household.

Far from providing “ammunition” to the Conservatives, the PBO study confirms how relatively benign the impact of the carbon tax would be. And yet three years of non-stop Tory demagoguery on the issue has been enough to spook the Liberals into effectively ditching it.

In its place we will get a lot more of the usual insanely expensive programs that don’t do much for the environment but don’t annoy the voters: subsidizing the well to do to buy electric cars they were going to buy anyway, paying people to retrofit their houses, etc. Nice work, everyone.

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