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Last week, Canadians got to watch the political equivalent of a solar eclipse: the federal NDP and Conservative Party of Canada voting together on a motion about climate policy. It was just one of the many unintended consequences of the Trudeau Liberal government’s baffling decision to grant a carbon tax exemption for home heating oil. At this point, it’s hard to see how the carbon tax they’ve spent years fighting for won’t get rolled back even further — if not eliminated completely after the next election.
This would be a major disappointment for the cadre of high-profile economists who have been the biggest backers of a carbon tax for decades. Back in 2008, a group of 230 economists put their names to a letter calling for a carbon tax as the best way to address climate change. Alberta’s 2015 Climate Leadership Plan, which arose from a panel chaired by eminent economist Andrew Leach, revolved around an economy-wide carbon tax. And a 2019 report by the Ecofiscal Commission, a group of independent Canadian economists, reinforced the case for an economy-wide carbon tax as the best way to reduce greenhouse gas emissions.
The authors of that landmark report even warned politicians against the temptation to lean on tools like regulations and subsidies instead of their preferred policy approach. “While low-visibility, high-cost policies may be easier to implement at the outset,” the report concluded. “They may prove less durable over time as stringency and costs rise.”
The authors weren’t alone in favouring a more transparent price on carbon over things like regulations and subsidies. In the United States, a group of 45 economists — including former U.S. Federal Reserve chairs Alan Greenspan, Janet Yellen and Paul Volcker — put their names to a shared statement in support of carbon taxes. “By correcting a well-known market failure, a carbon tax will send a powerful price signal that harnesses the invisible hand of the marketplace to steer economic actors towards a low-carbon future.”
With the benefit of hindsight, I think it’s now clear the economists had this one backwards. The carbon tax’s visibility is its biggest vulnerability, one that populist politicians on the right have exploited relentlessly. In the United States, meanwhile, the combination of an Obama-era regulation on coal-fired electricity and last year’s $380-billion subsidy bonanza known as the Inflation Reduction Act have fundamentally altered the path of greenhouse gas emissions in that country. The more the invisible hand stays that way, it seems, the better.
In fairness to our economists, few could have predicted a global pandemic and the ensuing fiscal stimulus packages would create an inflationary crisis that made the carbon tax’s presence far more conspicuous than it might be in more normal times. And even fewer would have expected the federal government responsible for implementing a carbon tax to fail so completely in communicating the existence of a rebate to voters.
But maybe, just maybe, the Trudeau government should have spent a little more time listening to the political scientists in their midst and a little less to the economists who clearly ran herd on the policy’s design and implementation. By privileging economic efficiency over political durability, they set themselves — and the carbon tax — up to fail.
There was at least one Canadian economist who saw this all coming: Mark Jaccard. Back in 2018, the SFU professor wrote an op-ed in the Globe and Mail that stands out today for its prescience and perspicacity. “Carbon pricing is not essential to stop burning coal and gasoline,” he argued. “We economists only say it is because we prefer it.”
Their preference, Jaccard wrote, was informed almost entirely by intellectual concerns rather than pragmatic ones. “Surveys have long shown that taxes are a toxic issue for some voters. Unless it is an obvious tax cut, any other tax change for societal benefit can easily be framed by opponents as economically harmful. A politician proposing carbon pricing presents an irresistible target.”
Canada's climate policy is built on the foundation of an economy-wide carbon tax. But as that continues to get eroded, it's worth asking if there's a better way forward — and if are there lessons we can learn from the ongoing attacks on the levy.
Indeed, in a previous piece for Policy Options in 2016, Jaccard took that argument even further. “While carbon pricing has become a mantra for economists, environmentalists, academics, celebrities, media pundits and even corporate heads, none of these people needs to get re-elected,” he wrote. “For politicians with survival instincts, it’s a different game.”
If that game wasn’t clear after the Alberta NDP’s defeat in 2019, it should be abundantly obvious now. Carbon taxes may be the most economically efficient way to reduce greenhouse gas emissions, but only if they remain in place and continue rising in stringency. If they’re halted — or worse, eliminated — after an election defeat, all that efficiency goes out the window. In the end, political durability matters most.
It’s important for those who care about the climate not to miss the forest for the trees here. The end goal, after all, isn’t the creation of a carbon tax regime but the reduction of Canada’s greenhouse gas emissions in a way that maximizes benefits and minimizes costs. As we’ve seen, that calculation must include both the economic and political costs. There’s still a path for the Trudeau Liberals to fight (and maybe even win) the next election on climate policy. But if that’s going to happen, they must remember the people they need to please are the voters, not the economists.