How Trudeau can save the carbon tax (and win the next election)

Last week, like millions of Canadians, I got my quarterly carbon tax rebate. And like at least a few thousand of them, I actually understood what it was for. To say the Trudeau Liberals haven’t aced the communications around the carbon tax rebate — sorry, the “climate action incentive” — would be like questioning Donald Trump’s commitment to the rule of law. Their failure to put physical cheques in people’s hands, or even get the banks to describe the deposits the same way, has made the already difficult job of selling Canadians on their signature climate policy nearly impossible.

If you want to know why recent polling has Pierre Poilievre’s Conservative Party of Canada projected to win more than 200 seats in the next election, this is as good a place to start as any.

The ongoing opposition to the carbon tax in places like Alberta and Saskatchewan is expected. But the numbers coming out of Atlantic Canada, where the federal tax and rebate officially took effect in July (after provincial climate plans were found to be insufficient), have to be much more concerning. A recent Postmedia-Leger poll actually had Atlantic Canada as the region most opposed to the carbon tax, with 48 per cent of people surveyed saying they favoured the total abolition of carbon pricing. The national numbers aren’t much more encouraging, with only 18 per cent of Canadians supporting the continued increase in the carbon tax and 68 per cent opposed to paying more for gasoline so Canada can reach its net-zero targets.

But while it might be tempting for some in the Liberal camp to consider scrapping the policy, that would be an admission of defeat — and a form of political suicide. Instead, they’d be better off doubling down on carbon pricing. First and foremost, they need to do a far, far better job of helping Canadians understand why they’re getting money in their bank accounts every quarter and who’s responsible for it. That means being as shameless as possible, whether it’s sending fake cheques to every taxpayer who gets a rebate or finding some other way of driving home the reality of the rebate and how big it’s poised to get.

Even more importantly, they need to shift the ballot question around the carbon tax. If it’s a choice between paying a tax (and getting a rebate that far too many people are still confused about) and paying nothing, the choice for many voters will be an easy one. But if the choice is between Canada’s highly profitable oil companies paying their fair share and regular Canadians paying it for them? Well, then, the political calculus might just start to shift in the Liberal government’s favour.

They could do that by proposing a freeze on the consumer portion of the carbon tax and pairing it with a higher carbon tax on oil and gas production. This was one of the two options the federal government considered before settling on the emissions cap Steven Guilbeault is still promising to deliver this fall. His preference for a cap-and-trade approach isn’t particularly surprising, given that Quebec has long had such a system in place for its own provincial greenhouse gas emissions. But modifying the existing carbon tax in a way that gives consumers and small businesses a break while more visibly putting the onus on the oil and gas industry, which accounted for 27 per cent of Canada’s emissions in 2020, has far more political upside for his Liberals.

That’s especially true given how little Canada’s major oil and gas companies are actually paying on their emissions. While ordinary Canadians pay the full weight of the carbon tax, large industries are only exposed to a fraction of it due to a system known as “output-based allocations.” These help discourage so-called “emissions-intensive, trade-exposed” companies from simply shifting their production to different parts of the world without a carbon price, which would be a lose-lose situation from Canada’s perspective. But it’s harder to make the case there for oil and gas companies, given they can’t exactly pick up their existing oil and gas wells and move them across the border.

In 2020, for example, Suncor paid a grand total of $0.12 per barrel — yes, that’s 12 whole cents — in carbon taxes and related compliance costs, while its 2023 Climate Report models an average cost over the next decade (2023-32) of $1.70 per barrel on its production and $0.48 per barrel on its highly profitable refining operations. They can, and should, pay more than that. If they had to face the fuller brunt of meaningfully higher carbon prices down the road, they might finally start spending some of their surplus cash flow on the decarbonization projects they love to talk up.

This approach would surely annoy Canada’s community of environmental economists, who have always preferred the intellectual cleanliness of an economy-wide price on carbon. But with all due respect to their wisdom, political durability is a more important consideration than economic efficiency right now — and it probably always should have been. Carbon pricing is simply too hard to explain, and too easy to lie about, especially in a federal system where provinces like British Columbia can opt out if they have their own carbon price (and rebate system) in place. Poilievre has been trading on this in B.C. for years now, pretending he can “axe the tax” when the federal government has no such power there, and the means-testing of rebates in B.C. only contributes to the confusion about them elsewhere.

It’s time for Ottawa to make things simpler. By putting the onus more squarely and transparently on Canada’s highest-emitting industry, the Trudeau Liberals can help clarify the political stakes for voters in the next election. Rather than asking them whether they want to pay a tax that someone else is promising to eliminate, they can vote on whether Canada’s oil companies should have to practise what they preach.

That’s not necessarily a fight they’re going to win, but it’s one they won’t lose as badly as the current one.