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.”