For months now, Pierre Poilievre has hammered the Liberal government with his familiar pledge to “axe” its carbon tax. But for all his talk, he probably never expected Justin Trudeau to actually listen. That’s effectively what happened Thursday when the prime minister announced a three-year carbon tax exemption on home heating oil, a move clearly designed to placate restless voters in Atlantic Canada. In the process, it undercut arguments the government has been making for years and made the defence of an already difficult political position nearly impossible.
This is, as I’ve written many times, largely a mess of the government’s own making. Its communications around the carbon tax and rebate have been abysmal from the beginning, and this has allowed the merchants of doubt and disinformation to run riot around an already confusing subject. Its decision to latch onto the Parliamentary Budget Officer’s initial analysis, which showed the rebate exceeded the carbon taxes paid by eight out of 10 households, also seemed like a dangerous limb to step out on. The PBO duly chopped it off with a subsequent report that included modelled economic impacts of the tax swinging the balance decisively in the other direction.
But those are mere foot faults compared to this move, which might be the biggest unforced political error we’ve seen in a long time. “Our government is delivering relief to Atlantic Canadians, rural Canadians, and people across the country who use home heating oil,” Finance Minister Chrystia Freeland tweeted. Said relief, though, was from a policy her own government implemented — one that just came into effect in Atlantic Canada earlier this year.
It’s difficult to accurately describe just how bad this looks for Freeland and the Liberals. “To blow up your own signature policy is a very different thing,” strategist Corey Hogan said during an appearance on the Ryan Jespersen show, “because your entire government brand is tied to this particular policy, and you’re effectively admitting major policy challenges with it here.” Any counter-arguments the Trudeau Liberals might want to make to criticisms about the cost of the policy or its impact on Canadian households — ones the Conservatives have been making for a while — have been effectively neutered as a result.
They’ve even managed the herculean task of making me agree with Alberta Premier Danielle Smith. “The federal government has decided that one part of Canada with one type of home heating is worthy of a carbon tax break, while those living elsewhere using another type of home heating do not,” she tweeted on Friday. “Further, after telling Canadians for years that rebates covered the costs of the carbon tax for everyday consumers, the feds now admit with this one-region-one-fuel-type-only tax break, this claim is not true.”
She’s right. This decision is obviously motivated by the declining political fortunes of the Trudeau Liberals in Atlantic Canada, where they stand to lose most of their 23 seats if current polling holds. But while it might stop some of the bleeding there, it invites Canadians in other provinces to get their own pound of political flesh from the federal government. Now that they’ve lit the fuse on the demise of the carbon tax in Canada, they might as well blow it up themselves.
For starters, that almost certainly means eliminating the tax on natural gas for home heating. How, after all, could they possibly justify waiving it on a higher-emitting source (fuel oil) and yet leave it in place for a lower-emitting one? Instead, they should focus on expanding the incentives they announced for heat pumps in Atlantic Canada to the rest of the country, especially in light of recent research showing they work, even in Canada’s cold winter climate.
The Trudeau Liberals might want to consider withdrawing the carbon tax on gasoline as well, or at least plowing its proceeds more visibly into incentives for the adoption of electric vehicles. The rebate, while well-meaning, has been communicated so poorly that many Canadians still don’t know it exists. Transferring some of that revenue into a bigger electric vehicle subsidy, on the other hand, might get their attention.
There would be an inevitable pushback from Alberta, where the oil and gas industry and a government so clearly beholden to it won’t want to lose the market share and economic opportunity associated with home heating and vehicle-related consumption. Unlike the fight over the carbon tax, that’s one Ottawa could actually win. Things like electric vehicles and lower home heating and cooling bills are a much easier political sale to make than a carbon tax whose impact is inescapably nebulous.
As I wrote earlier this week, they might also want to expand the front in this fight with Alberta’s oil and gas industry. By putting the onus of Canada’s climate targets more squarely on those companies, they would effectively be daring conservative politicians to ride to the defence of these mighty corporations — which the Conservatives rarely, if ever, turn down. That’s a look that doesn’t play nearly as well in B.C., Ontario, Quebec or Atlantic Canada as it does in Alberta, and it could help the Liberals shore up their increasingly vulnerable position here.
Either way, the carbon tax and rebate — which so many environmental economists have spent much time and effort defending — is effectively dead. The Trudeau Liberals now need to decide if they want to die on the same hill with it or retreat to higher ground where they might stand a fighting chance.
Comments
Fawcett: "The PBO duly chopped it off with a subsequent report that included modelled economic impacts of the tax swinging the balance decisively in the other direction."
Not really. With rebates, the bottom 40% of households still come out ahead or just about even in all backstop provinces — from now until 2030-31 even when economic impacts are factored in. The bottom 20% of households in Alberta come out $289 ahead on average in 2022, and $660 ahead by 2030-31. No hardship. Even households in higher income brackets can come out ahead if they make smarter energy and consumption choices.
Modest-income households are protected. The affluent can afford to pay for their fossil-fuel sins, discretionary and otherwise.
No argument that the Liberals have kneecapped their signature climate policy. After failing dismally to sell Canadians on its benefits and rebate protection. The Liberals failed to defend the policy against the massive right-wing disinformation campaign that is only picking up speed.
The key to political success is selling your policies to the public. If you don't show up to the game, don't expect to win. Ceding the battlefield to the enemy before a shot is fired.
Whoever is advising Trudeau on the energy/climate file, the advice on offer is terrible. Liberal policy is growing more incoherent, not less.
Trudeau may as well hand over the keys to Poilievre now.
In any case, while the basic what-money-goes-where information is simply factual, economic modelling is not. And most users of economic models, whether in government, banks, right wing think tanks, use important modelling assumptions which are false. As a result, you cannot trust anyone who claims anything based on an economic model.
So for instance, economic models assume that government spending in an industry will shrink that industry, because the models assume government investment will "crowd out" private investment, and that government spending is inherently less efficient (some of the most "authoritative" models assume I believe 50% as efficient), so government spending inherently means less effective total spending. This is complete nonsense, as (just for instance) the investment boom prompted by Biden's modest industrial policy makes clear. Basically, most economic models are a way of making political advocacy look like neutrality by concealing the advocacy part as "assumptions" which are never normally mentioned. Some economic models are used by people who don't even realize that because the damn things and their fake assumptions have been successfully made into conventional wisdom.
So in this case you've got a government that might like to do useful things, but they drank the kool-aid long ago so they let themselves be hobbled by a Parliamentary Budget Office plugging the numbers into models that assume doing useful things is counterproductive.
Fawcett: "Transferring some of that revenue into a bigger electric vehicle subsidy"
EV subsidies mostly flow to well-off households that can afford to buy cars and do not require subsidies. Wealthy progressives want EV subsidies so they can salve their guilty conscience over their outsize footprint without having to make any real change in their unsustainable lifestyles.
"Shifting to EVs is not enough. The deeper problem is our car dependence" (CBC, Jul 31, 2022)
https://www.cbc.ca/news/opinion/opinion-electric-vehicles-car-dependenc…
EVs are not a green transportation solution. EVs enable sprawl, which makes efficient public transit impossible. Not a climate solution, much less an equitable one.
Handing out EV rebates to the affluent who do not need them ignores the fundamental inequities of our transportation system, in which the poor and people who choose not to drive face long walks to bus stops, decreased service, unsafe conditions, and fewer routes in a system starved of resources. As their affluent and oblivious neighbours drive past in Tesla Model 3s. Meanwhile, empty buses tour suburban neighbourhoods, because no one who can afford a car will take transit.
Affluent progressives support EV subsidies so they can salve their guilty conscience over their outsize footprint without having to make any real change in their unsustainable lifestyles. Sacrifices are for other people.
Climate change solutions that entrench structural inequity in society and marginalize the poor fail Canada's most vulnerable citizens.
Equal representation has just been kicked out along with Trudeau who just signed his own demise as he can't just pick and chose who he wants to please as broken promised bread crumb trails from planting a million trees along with Transparency, Accountability and Openness and giving one promise of tax break for three years while's the other seven promises and Territories also suffer the same high cost of living with his agenda of Climate Tax that is causing hardship nationwide. I suspect with his personal life in shambles, he is unfit to run this country he destroyed. Mental illness does not carry a flag,, it's a terrible sickness and anyone is prone to it,, even TRUDEU as marvelous he thinks he is with that evil smirk he displays. However my prediction is he will pull a McGuinty and resign and we all know who his successor is and may I present Miss Melany Joly as the next appointed Liberal P.M. who will be replaced by P.P in 2024...
Well Max, Poilievre is loving you today. I can see him gloating even more than he routinely does.
While I agree that the carbon tax / rebate was and is poorly communicated, I don't agree that it is too late to properly explain everything about it from A to Z.
Too many have allowed Poilievre's self serving slogan to dumb down the entire narrative to "Tax bad" "Ax good".
Forget about the rebates which most (except the highest emitters who tend to be the well to do) do better receiving after paying their tax on carbon.
This should be about a nation pulling together to contribute in a tangible way to cleaning up the mess we all created. Hard to own up to, I know.
I don't agree that tweaking the plan to align with current realities of oil heaters across Canada, additionally helping rural residents across Canada (who have less access to for example public transportation) and helping with heat pumps for oil heaters will be the death knell of it.
Heck, maybe it even makes it all less of an issue for many.
So Liberals, please immediately get extra busy with professionally explaining how and why carbon taxes are the most efficient and least expensive way to curb GHG emissions.
And use the following readily available information to counter the CPC misinformation machine which of course is ultimately all about benefiting the fossil fuel industry.
The number: 0.15% of the inflation increase can be attributed to the carbon tax.
Pierre Poilievre's Conservatives have made much sport of arguing the Trudeau Liberals' tool to fight climate change has severely affected the affordability of fuel, groceries and other goods.
Not so and Bank of Canada have the numbers that prove P.P. is telling a whopper that far too many just swallow and parrot.
additionally
Trevor Tombe, an economist at the University of Calgary who has studied the impact of the carbon price on consumer costs, points to Statistics Canada data that suggests its impact on food prices is less than one per cent.
Here's "reality" according to P.P. on X, Oct. 4, 2023:
"After 8 years of Trudeau, a Thanksgiving turkey can run you up to $120.
When you carbon tax the farmer who grows the food and the trucker who ships the food, you tax all who buy the food. Axe Trudeau's tax on food. Bring homes lower prices."
Time to flush out the mouthpiece for climate inaction and stand up to the master manipulator of (mis)information instead of waving a white flag and handing him his ax.
I like the idea of subsidizing heat pumps; this will definitely contribute to CO2 reduction and will continue to keep heating costs low for the consumer; the maintenance of a heat pump may even be lower than of an oil furnace. However, If rural residents cannot afford to reduce their consumption of heating oil and have to pay a supplement because they generate CO2, no CO2 reduction will occur. But if they can have a subsidy to replace their old oil furnace with a modern heat pump, many will take the offer and there will be results.
Obviously, the logic would apply to those who use gas furnaces, but the subsidy should be smaller.
It is the old dilemma: the carrot or the stick. In this case, the carrot is better.
The carbon tax is a moderately good thing, and so it's not great to see this happening to it.
But it was never a really awesome thing, and it has done little to drive changes in behaviour in the real world. There is a general principle that is pointed to by our discussion of subsidies on heat pumps: A lot of fossil fuel demand is quite INELASTIC. This is a totally basic, orthodox, first-year-economics point. I don't think much of orthodox economics, or even of markets, but it amazes me how bad the people who do supposedly like them are at them.
So, demand for something being inelastic means that increases in price do not result in that much reduction in demand. Some things are very easy to substitute, so if their price goes up people will quickly switch to other things instead. So demand goes down quickly as prices go up. Such things are characterized by elastic demand, and if you want to stop people from using them, a "carbon tax" style approach works well/efficiently. But fossil fuels are not characterized by elastic demand. Substitutes for fossil fuel use generally involve high up-front switching costs, whether it's a heat pump for your home or a whole new multi-billion dollar "green" steel mill. Worse yet, in many cases (e.g. renters) the people paying for the fossil fuels are not the ones deciding whether to switch--for those cases, demand is in theory infinitely inelastic, although in reality at some cost level you'd reach a point where rent in places using fossil fuels for heating etc. became so expensive relative to owning that the owners would be unable to rent them out without switching. Overall, I seem to recall that fossil fuels have been calculated to be around 60% inelastic.
Because of this, a carbon tax will work, at least if it's high enough, except for renters, but will not be all that efficient. Subsidies for switching, combined with regulation and direct government action, work better.
Few seem to remember that the reason we ended up with carbon taxes (and their evil cousin cap-and-trade) was that the methods that would work were panned by economists and the right as not markety enough and therefore inherently inefficient. The about-face by Conservatives as soon as the methods that would work best were abandoned in favour of the less effective carbon tax is just a demonstration of what massive liars they are. They just want nothing to be done; when real action and regulations were proposed, they said no, no, terrible idea, a carbon tax would be so much better--not so as to get a carbon tax but so as to block the other stuff. Then when carbon taxes started to land, they opposed that as well because doing nothing was always the goal. As soon as the carbon tax is gone, they will turn more attention to opposing subsidies to heat pumps, electrified transportation and so on, or to anything else any government does that seems like it might in any way work against continued fossil fuel lobby profits.
TL/DR:
1. Conservatives are bought and paid for fossil fuel shills who oppose all reductions in fossil fuel use by any method; any and all things they claim about the specific policies involved will be lies.
2. Carbon taxes were a second-best option compared to more direct action, and were a fallback position forced by conservatives and right wing economists and the right wing media.
RP: "fossil fuels are not characterized by elastic demand"
We need to distinguish between needs and wants.
A good deal of energy use is discretionary, especially in affluent nations like Canada.
Smith lives in a large house. Jones lives in an apartment.
Smith has a large family. Jones is a happy bachelor.
Smith shops till she drops. Her house is crammed with stuff. Jones doesn't buy stuff he doesn't need.
Smith commutes a long distance twice a day to work. Jones walks to work.
Smith owns several large vehicles. Jones bikes or buys a bus pass.
Smith flies to Mexico every January for a vacation. Jones goes on a camping trip every summer in his province.
Smith goes camping in a 40 foot RV, towing a motorboat. Jones has a tent.
Smith has a meat-heavy diet. Jones is a vegetarian.
Smith buys a new wardrobe every year. Jones wears his clothes until they wear out.
Smith's footprint is ten or a hundred times higher than Jones's.
A matter of choice.
Economists across the spectrum agree that carbon pricing is the most efficient market mechanism to reduce emissions.
"Carbon pricing seems obvious to economists, but for many voters it just doesn't click"
Climate change is the greatest market failure in history. The most efficient way to prevent and solve environmental problems? Correct the market failure.
We need to price all goods and services properly, including energy. Price in all health, environmental, and climate costs.
To be effective, the price on carbon pollution needs to rise far higher:
"Secret briefing says up to $300-per-tonne federal carbon tax by 2050 required to meet climate targets" (National Post, 2017)
On the core point, rather than make an argument, you assert the existence of an argument from authority. Argument from authority is a fallacy--triply so when the authority is economists. Economists were a big factor in getting us into this mess. And let's be clear here: Most public-facing economists are ideologues who are perfectly willing to lie in the service of the broader objectives they back.
So if in a vacuum you asked an economist "Is taxation an efficient method of curbing the consumption of a good for which demand is fairly inelastic", they would say "No." But if it's about concrete policy and the alternative is doing things that will work, but which economists don't want people getting the idea that they work because they're more generally a threat to free market ideas (subsidies, regulations, direct government action to produce desired goods), then suddenly they will say "Oh, sure, a tax is the best thing, it will send a market signal and 'market' = good!" That is, they'll lie.
And yeah, the tax WOULD have to be way higher to affect behaviour very much. So that's efficient, is it? Whereas quotas, i.e. regulation, cost nothing and seem to be working pretty well.
Most of your post is taken up by a sort of . . . hypothetical anecdotal moral argument? That is largely beside the point? I don't exactly disagree with it, but it's unclear what connection it has to climate policy. I suppose it comes down to a claim that SOME fossil fuel demand is elastic, because it's based on choice. Well, yeah--I didn't say fossil fuel demand was COMPLETELY inelastic, which is why I didn't say a carbon tax was COMPLETELY ineffective. Just, not very efficient, because fossil fuel demand is, no matter what anecdotes of some individuals with a good deal of money choosing certain things you want to make up, FAIRLY inelastic, about 60%.
And finally, you say the most efficient way to deal with "the greatest market failure in history" is to "correct the market failure". No it bloody isn't, it's to rely less on markets, which are pretty much designed to fail that way. Profits rely heavily on externalities and always have. I would have thought a massive transit advocate would understand that--we're not going to get to your beloved far-fewer-cars-on-the-road scenario with carbon taxes! Widespread, heavily used transit and communities designed to need less transportation are ENTIRELY about government action; markets can't give you that stuff whether they're "failing" or not.
RP: "Economists were a big factor in getting us into this mess."
With or without economists…
- fossil fuels would be mispriced;
- the health and environmental costs of fossil fuels would be externalized;
- atmospheric CO2 levels would be 418 ppm.
- global average surface temperature would have increased 1.1 C since pre-industrial.
RP: "On the core point, rather than make an argument, you assert the existence of an argument from authority."
On the contrary. I identified the fundamental failure of markets to price in the health and environmental costs of fossil fuels. Fossil fuel producers and consumers use the sky as a free dump. Every smokestack and tailpipe represents an invisible subsidy. Violating polluter-pay and free-market principles.
If fossil-fuel producers and consumers don't pay the full tab, someone else must pay. Our system allows producers and consumers to externalize the health and environmental costs of fossil fuels. These costs are downloaded to the public purse, the environment, and future generations. A massive transfer of wealth. Stealing from our grandchildren. Subsidizing our own destruction. Voodoo economics. That is the only reason the fossil fuel industry is viable. False profits.
Market failure is the fundamental issue. Climate change is the biggest market failure in history.
Realistic price signals are essential for markets to function properly.
Wealth that degrades our life-support systems is illusory. The costs of climate change and fossil-fuel pollution are prohibitive. An obvious mismatch between costs and price. An economic system that permits/ignores/rewards damage to our biosphere dooms us to extinction.
In a truly free market, the fossil-fuel model would not be viable. Market distortions — subsidies, visible and invisible — are the only way it survives. Visible fossil fuel subsidies in AB and Canada total billions of dollars. The giveaway party that never ends.
No real progress can be made unless the market failure is resolved.
Solution? End the market failure. Put a realistic price on all goods and services, including energy. Price in the environmental and health costs of fossil fuels. End all fossil subsidies. Support carbon pricing.
Consumers need realistic price signals to guide them towards rational decisions. Realistic price signals price unsustainable goods and services and design — and excessive behavior (consumption, pollution, waste) — out of the market.
The speed at which we shift away from fossil fuels largely depends on economic signals. Price in the damage, and fossil fuels become a losing proposition overnight. The fossil-fuel industry and system must cease to be a profitable enterprise.
Until then we subsidize our own destruction.
@ Rufus Polson: You claim without evidence that fossil fuel demand is largely inelastic. My first comment demonstrates just the opposite. Two people in the same neighborhood can have dramatically different consumption habits. Smith could choose to live more like Jones. As long as the market failure persists, Smith's energy extravagance and waste know no bounds.
RP: "I didn't say fossil fuel demand was COMPLETELY inelastic."
I did not suggest otherwise. Straw man.
As I stated, a good deal of energy use is discretionary. As the Smith/Jones example illustrates.
RP: "I seem to recall that fossil fuels have been calculated to be around 60% inelastic."
Whom are you quoting? Economists?
RP: "And yeah, the tax WOULD have to be way higher to affect behaviour very much. So that's efficient, is it?"
To be effective, the carbon price must be realistic. High enough to reflect the actual environmental and health costs of fossil fuels. Which are prohibitive. A high carbon price is efficient because it makes the actual environmental and health costs of fossil fuels absolutely clear to producers and consumers. Sending the strongest possible signal that burning fossil fuels is unsustainable.
RP: "Whereas quotas, i.e. regulation, cost nothing and seem to be working pretty well."
Regulations also imply costs. It is economic fiction to suggest otherwise. Producers have to change or invent new methods, systems, and technologies — and pass those costs on to consumers.
Regulation is less efficient but more politically acceptable than pricing, because the costs are often hidden from the consumer. If the full costs to be clearly included in and indicated on the price tag, that sends the most direct and efficient signal to producers and consumers.
More sustainable (and therefore actually cheaper) goods, services, designs, and paradigms cannot compete on a level playing field if less sustainable systems are unfairly advantaged.
RP: "… you say the most efficient way to deal with 'the greatest market failure in history' is to 'correct the market failure'. No it bloody isn't, it's to rely less on markets, which are pretty much designed to fail that way."
Even strongly centralized, highly regulated markets rely on price signals to govern producer and consumer behavior. Price signals determine the flow of resources wherever goods and services are exchanged. Unless you live by yourself on a desert island, price signals determine all your economic interactions and transactions.
Markets are how we deal with the scarcity of goods and services — how we regulate supply and demand. Price signals need to be realistic, no matter how regulated the economy.
RP: "Profits rely heavily on externalities and always have."
Such an economic system inevitably leads to exhaustion of resources, massive pollution, and waste. Doomed to collapse.
RP: "Widespread, heavily used transit and communities designed to need less transportation are ENTIRELY about government action; markets can't give you that stuff whether they're 'failing' or not."
Urban sprawl exists because it is profitable for developers to build it and cheaper for homebuyers to live in the suburbs. Absent the strong arm of government to correct market failure, the actual costs of sprawl are, again, downloaded to the public purse, the environment, and future generations. Sprawl, like other unsustainable paradigms, needs to be priced out of existence.
Government action is required. In that, you are correct. The primary role and responsibility of government here is to correct the market failure. End the subsidies, visible and invisible, to producers, developers, consumers, and homeowners.
On its own, carbon pricing is not enough. Too slow, and we do not have the time for prices to catch up with reality. Carbon pricing is one tool in the toolbox, but it is essential.
@ Rufus Polson: I support carbon pricing. You support regulation.
A false dichotomy. Preventing and correcting market failure using full-cost accounting is a type of regulation. Regulating the market is a key regulatory responsibility of government.
For the economy to function efficiently, the market needs a referee to make and enforce market rules. Left to their own devices, the players in the free market will otherwise transgress its fundamental principles.
Concentrations of wealth and power (monopolies, oligopolies) limit competition, an essential principle of the free market. Think Amazon. Standard Oil. Telecom companies in Canada. Paradoxically, there is no free market without strong government oversight.
Likewise, it is government's responsibility to ensure that producers and consumers, developers and homeowners, etc., do not infringe upon the rights of other citizens, taxpayers, and society — or damage the biosphere. To prevent environmental mayhem, prices must reflect full costs. Polluter-pay is an essential principle.
A penalty must be paid for environmental damage. Where costs are prohibitive, price must reflect that reality. To transition to a more sustainable economy, the surest way to limit less sustainable goods, services, and design and make the alternatives more attractive is to gradually price the former out of existence.
In the case of fossil fuels, that system is called carbon pricing.