The carbon tax is on life support, writes Jack Mintz. (Credit: POSTMEDIA NEWS ARCHIVES)
Is the carbon tax dead in Canada? Yet-to-be-elected Prime Minister Mark Carney has not actually eliminated the fuel charge paid by consumers and low-emitting businesses, which only Parliament can do. But he has lowered its rate to zero. On the other hand, he intends to raise carbon taxes on big emitters. This week, Conservative leader Pierre Poilievre upped his “axe the tax” ante to the federal tax on big emitters but would leave the provinces and territories in charge of their own schemes.
How did we get to this point? The carbon tax, once hailed as the simplest approach to curbing GHG emissions — even by the oil and gas sector — is now on life support. And perhaps deservedly so, given its political mismanagement.
To begin this sordid history, I go back to a 1997 business tax reform committee that then finance minister Paul Martin set up, with me as chair, to modernize Canada’s business taxes. One proposal that caught political attention was to convert the federal fuel excise tax on gasoline, diesel and aviation products into a broad-based environmental tax on all air pollutants. Its revenues would then be used to reduce corporate income taxes, giving Canada a “double dividend” — both reducing pollution and improving business competitiveness. Distorting rules, regulations and subsidies would be avoided, except to support research and development.
Alberta, ironically, was first to levy a carbon price on large emitters, the forerunner of today’s industrial tax, which it did in 2007. Companies emitting more than 100,000 tonnes of CO2-equivalent paid a $15/t levy on emissions that were required to fall by 12 per cent within six years. Revenues would be used to support carbon sequestration. In 2017 Rachel Notley’s NDP government added a carbon tax on fuels on top of two mandates: a cap on total oil sands emissions and a requirement for 30 per cent renewable electricity. The Kenney government removed the fuel charge in 2019 but only reformed the big-emitter carbon tax, which continues today.
British Columbia introduced the first broad-based carbon tax in North America at $10/t in 2008, using the revenues to reduce corporate and personal taxes. The NDP abandoned revenue neutrality a decade later to boost spending but the tax, now $80/t, has the same structure.
After toying with a carbon tax since 2007, Quebec adopted Canada’s first cap-and-trade program in 2014, joining California and later Ontario, until the Ford government withdrew.
Having signed on to the Paris Accord in 2015, the Trudeau government introduced the “federal backstop” a year later. That resulted in provincial and territorial carbon taxes or cap-and-trade pricing of $20/t by 2019, with prices then scheduled to rise yearly to $170/t by 2030. Revenues are returned to households and small businesses, which preserves revenue neutrality but gives up the competitiveness “double dividend.”
Today, the federal fuel charge is levied everywhere except B.C. and Quebec, which have their own pricing systems. Eight provinces administer the big-emitter carbon tax, while Manitoba and Prince Edward Island rely on the federal big-emitter tax.
Ontario, Quebec, New Brunswick and the western provinces sued Ottawa, challenging the carbon tax as intrusion in their area of jurisdiction but in 2021 the Supreme Court judged it constitutional given the federal government’s interest in “peace, order and good government.” Despite this success in court, opposition to the tax grew as inflation made it hard for many Canadians to put food on the table.
The carbon tax was also undermined by a growing hodgepodge of federal and provincial regulations, mandates and subsidies to decarbonize the economy. Why tax carbon, people rightly asked, if we have all these other policies to reduce emissions?
The first nail in the carbon tax coffin came in October 2023 when the Trudeau government temporarily exempted home heating oil to curry support in Atlantic Canada. This naked political expediency created an opening for Pierre Poilievre’s “axe the tax” campaign and the Liberals went into political freefall. After Trudeau quit, Karina Gould was the only leadership candidate who stuck with carbon taxation. Everyone else threw it under the E-bus, including Mark Carney, who released a plan, heavy with new mandates and, almost shockingly, carbon tariffs — even as he denounced President Donald Trump’s tariffs.
Now Pierre Poilievre has renewed “axe the tax” to also now fell the big-emitter tax. But these are mainly provincial levies and provinces are likely to keep them since companies have invested in tax credits that would become worthless otherwise. On the other hand, carbon taxes will not likely rise to $170/t.
Will EV mandates, low-carbon fuel regulations, oil and gas emission caps and clean electricity rules be next for the chopping block? Ottawa’s latest “net-zero accountability report” lists 100 federal regulations, grants, codes and other policies — of which a fifth, including the oil and gas cap and clean electricity regulations, are facing implementation hurdles. On top of this, the federal government has failed to model projections, indicators, a timetable and key measures to reduce emissions. No surprise here — the net-zero agenda is basically unmanageable.
If we’re sincere about decarbonizing, let’s go back to square one and try something simple, not complex. Making the economy worse off in these challenging times isn’t going to help us reduce emissions, and we can’t solve this global problem on our own anyway.
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