The Price is Right: All About Canada’s Amended Carbon Tax
It has never been easy for a government to announce a hike in taxes, let alone in the middle of a pandemic. Nevertheless, Justin Trudeau and his cabinet did just that. In early December, they brought forth an adapted carbon tax plan which will increase the current price from 30$ per tonne to a more ambitious target, 170$ per tonne, by 2030. This would require a gradual increase of the tax by 15$ a tonne per year, in order to meet the Paris Climate Agreement.
In 2018, Canada adopted a federal framework for the carbon tax. Provinces which already had a carbon tax system on par with or better than the federal government’s plan were permitted to continue to abide by it, as was the case in Québec and British Columbia. Ontario was also included until Doug Ford was elected premier, withdrawing from their cap-and-trade agreement saying, “I promised that we would make life more affordable in Ontario”.
Where does tax revenue go? In provinces that use the generic federal framework, the revenue is returned to individuals and families when they file their tax returns. In provinces which use their own carbon tax system, the use of the revenue is controlled by that province. For example, in Québec, the revenue goes to a fund that is used to invest in green innovation.
When Canadians consider the existential threat that climate change poses to their current and future lives, it seems that the majority is ready to side with a government that acts. The carbon tax was one of the central issues in the 2019 federal election. Despite its potential flaws being litigated thoroughly, 2/3 of Canadian voters opted for a party that supports the carbon tax. Similarly, a 2019 poll conducted by Abacus Data found that 78% of Canadians believed that a price on pollution should be a part of the Canadian government’s climate plan.
This isn’t surprising once we consider how carbon taxes are arguably the most efficient way to reduce consumers’ consumption of carbon. Carbon taxes provide real incentives to both consumers and firms to reduce emissions and therefore help fight climate change. The implementation of a market-based carbon tax raises the costs of production for firms. Therefore, in order to make the same amount of profit, firms will be encouraged to find new methods that require less carbon. In the long run, the carbon tax rewards companies who have environmentally friendly policies.
The most common opposition to the carbon tax is the fear that living costs will increase for consumers. It is true that some forms of the carbon tax do raise the cost of living, however, in the federal plan, the government has added measures to help the average family. In provinces with the federal plan, such as Ontario and Saskatchewan, the money collected from the tax is reimbursed to families in an attempt to offset the increase in prices that is caused by the carbon tax. However, in provinces that follow their own carbon tax plan, citizens may not be reimbursed.
The carbon tax should be championed by all, regardless of political leanings. Conservative thinkers, notably Andrew Coyne, hope to see their party adopt the carbon tax as well. In Coyne’s view, the government could collect the revenue from the carbon tax and then use the money to reduce taxes. This policy would leave the carbon tax revenue-neutral while still incentivising consumers to slowly reduce their consumption of carbon. Therefore, there is no reason why the carbon tax should be politically controversial. If both major parties can agree that climate change is a challenge worth tackling (which unfortunately is not always a given), then carbon pricing can easily become the norm.
For the first time in its history, the Canadian government has an ambitious climate plan that leaves us with a realistic prospect of meeting our carbon emission goals. While the increases can be seen as ambitious, the government has alleviated the strain for consumers with corresponding rebates. Nonetheless, this bold action is a real test for Canadians to prove that our priorities really are what we say they are. Will we rise to the occasion? Or will we recoil in the face of change?