Canada’s Parliamentary Budget Officer describes itself as “a neutral, non-partisan party independent of government.” But as the ever-deepening fiasco around its analysis of the carbon tax and rebate shows, that doesn’t mean it can’t get political. Its failure to proactively disclose a major error in its analysis — and the defensive way it responded to criticism of it — shows it has clearly taken a side in this debate: its own.
In April the PBO quietly posted an update to its website noting that it had accidentally included the industrial carbon price in its much-discussed modeling of the economic impacts of the federal government’s signature climate policy. That modeling, first released in 2023, quickly became ammunition for Conservative politicians and proxies, who have used it ever since to suggest the carbon tax was actively impoverishing Canadians. If the polls are any indication, the rhetoric is working.
Even without that error — and we’ll get to it in a second — the PBO’s economic math raised some questions. The report was premised on a comparison between the carbon tax and no climate policy and implied that doing nothing imposed no costs on Canadians. In a recent column, the Globe and Mail’s Tony Keller explained why this makes no sense. “Think of rules that force car manufacturers to put airbags in new vehicles. That makes cars more expensive, which means less money in consumers’ pockets, which diminishes other spending and economic activity. Under a model that considers only the cost of airbags, and not the health benefits, an airbag mandate is an economic drag that leaves everyone worse off.”
Ironically, this flawed reasoning was eventually rejected by none other than the PBO himself, Yves Giroux. “Anything we do with respect to addressing or trying to curb climate change will have costs,” he told the Canadian Press last year. “It's either a cost to the carbon tax or regulations to reduce the use of fossil fuel. Regulations also have a cost. Doing nothing would also have costs.” Weird that he didn’t include that in his economic modeling.
Now we discover the accidental inclusion of the industrial carbon tax in his calculations, which only further muddies the already murky waters. That’s because in Alberta, Saskatchewan, Ontario, British Columbia and Quebec, the federal industrial carbon tax has never been in force. And while the PBO’s Giroux has suggested that the unintentional inclusion of the industrial carbon tax in his modeling wouldn’t meaningfully change the figures, not everyone agrees with that analysis.
According to the Canadian Climate Institute, industrial carbon pricing will be the single biggest driver of emissions reductions in Canada by 2030. It’s hard to square that with the notion that it only represents a rounding error in the PBO’s analysis. As University of Calgary economist Trevor Tombe told the Globe and Mail’s Keller, “It’s entirely possible that the industrial system has more of an impact than the consumer system. I don’t have the proof but that’s my gut reaction.”
Alas, that’s all we have right now: gut reactions. If the PBO’s modeling was made available to other economists like Tombe, they could run their own analysis here or at least better understand what informs the PBO’s. Instead, it remains shrouded in mystery — one that’s compounded by the PBO’s suggestion that it won’t update its faulty figures until the fall. Why it would take them months to remove one input from their economic model is a mystery to me, but I suppose it’s just one of many here.
There is almost no chance that the eventual reveal here will change anyone’s mind about the carbon tax and rebate. The Conservatives are committed to the idea that it’s driving up the cost of everything in our lives, facts notwithstanding, and it’s unlikely that anything short of a full repeal will change their minds. The politics around the carbon tax are mostly set in stone, and they’re ones that may well sink the federal government.
But Canadians still deserve the truth here, even if some of us aren’t prepared to listen to it. We still need to know what the Conservative alternative to a carbon tax looks like and what costs it would impose on current and future generations, even if voters decide it’s not important to them. That’s work that the PBO, by its very nature, ought to be doing. Instead, whether by accident or design, it’s running interference for the Conservatives instead. In the process, it might be sealing its own fate alongside that of the carbon tax.
Comments
William Mitchell is Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), University of Newcastle, NSW, Australia
http://bilbo.economicoutlook.net/blog/?p=30523
"Even the so-called “Budget” offices like the Congressional Budget Office in the US, or the Parliamentary Budget Office (PBO) in Australia, which are advisory bodies diminish our democracies.
While these bodies claim to be ‘independent’, the fact remains that they are creatures of government. Further, irrespective of the major political party in power, these organisations tend to appoint people who share the same dominant economic ideology that the Treasury suffers from. So what gain is there?
***
The solution is not to create another public institution but to empower the independent research community in universities which spans all ideologies and thus reflects a cross-section of the possible opinion.
***
Sub-contracting out the process of economic policy so that the government of the day can just blame nameless bureaucrats is an assault on democracy."
Happy to see Tony Keller's comments noted here. Indeed, the biggest flaw in the PBO's analysis is not its accidental inclusion of industrial output-based carbon pricing (its impact remains to be seen) but its comparative: "The PBO didn’t do an apples-to-apples comparison. It compared the economic cost of the carbon tax apple with the economic cost of buying nothing, and found that an apple costs more than nothing. It’s like a study of which grocery store offers the lowest food prices concluding that the best way to save money on groceries is not to eat." Everyone is up in arms (and the PBO is very defensive) about its supposedly minor error but almost nobody is talking about this major fault in its analysis.
I don't understand why this person still is in this position. He refuses to recalculate this the right way and he should be fired for his defense of his flawed methodology and his attempt to hide his mistake.
Fawcett: "That’s because in Alberta, Saskatchewan, Ontario, British Columbia and Quebec, the federal industrial carbon tax has never been in force."
Like the fuel charge for consumers, the federal carbon price for large industrial emitters operates as a backstop in provinces that choose not to establish their own federal-equivalent pricing system.
Alberta, for example, has its own Technology Innovation and Emissions Reduction Regulation (TIER) pricing regime.
Provincial pricing programs for both consumers and large industrial emitters must meet federal standards.
"Canada’s approach is flexible: any province or territory can design its own pricing system tailored to local needs, or can choose the federal pricing system. The federal government sets minimum national stringency standards (the federal ‘benchmark’), that all systems must meet to ensure they are comparable and effective in reducing greenhouse gas emissions. If a province or territory decides not to price pollution, or proposes a system that does not meet these standards, the federal system is put in place."
"Carbon pollution pricing systems across Canada" (ECCC)
Fawcett: "According to the Canadian Climate Institute, industrial carbon pricing will be the single biggest driver of emissions reductions in Canada by 2030."
Another questionable analysis that needs review.
The recent study by the Canadian Climate Institute (CCI) was widely reported, but not widely fact-checked. No one questioned its assumptions. Climate journalists reported CCI's results at face value.
"The first rigorous analysis attributing emissions reductions to collective and individual climate policies" suggested that industrial carbon pricing would do most of the heavy lifting when it came to reducing emissions by 2030.
"Industrial carbon pricing the top driver of emissions reductions, new analysis shows" (Canadian Climate Institute, 21-Mar-24)
"Between now and 2030, industrial carbon pricing will do more than any other policy to cut Canada’s emissions"
"This analysis clearly demonstrates that climate policy is delivering results—with industrial carbon pricing leading the pack. Robust large emitter trading systems are fundamental to any credible climate policy package in Canada."
https://climateinstitute.ca/news/industrial-carbon-pricing-the-top-driv…
In reality, industrial carbon pricing systems in Canada are the Swiss cheese of carbon policy.
Large emitters are subject to output-based pricing systems (OBPS), which price a fraction of total emissions, which effectively means a low carbon price on total emissions. Under Alberta's Technology Innovation and Emissions Reduction Regulation (TIER) pricing regime, major O&G companies pay pennies on the dollar in carbon costs.
The purpose of the OBPS and its provincial counterparts is not to expose heavy emitters to the carbon price, but to shield them from it, so they can remain competitive in global markets. Large industrial emitters, including in Alberta's oilsands, effectively pay a fraction of consumer rates. Under Alberta's Technology Innovation and Emissions Reduction Regulation (TIER) pricing regime, major O&G companies pay pennies on the dollar in carbon costs.
In Alberta, TIER dollars are effectively recycled back to industry to fund carbon capture technology and research. Projects industry should be paying for in the first place.
Federal and provincial carbon pricing systems do not impair large industrial emitters' profits — or reduce their emissions.
"Canada's biggest emitters are paying the lowest carbon tax rate" (Corporate Knights)
"Oil and gas producers pay among the lowest average carbon costs of any sector…
"There's a patchwork of OBPS policies across the country, and some provinces have implemented 'weak' or 'non-existent' systems that have let many big polluters off the hook."
"...Ottawa and most provincial governments grant heavy exemptions to a number of sectors, including O&G, chemicals, cement, steel and mining.
"But generous exemptions mean that how much of a firm's actual emissions are taxed varies widely by province, and, on average, companies end up paying for only 16% of the carbon actually produced.
"[In 2020, Suncor's] average carbon cost was roughly $2.10 per tonne, about one-14th of the full carbon price."
"[Ottawa’s industrial carbon price] accounts for less than 0.5% of national emissions ...
"… The impact of a carbon price is greatly lessened by the relatively small proportion of emissions that are actually covered by the price.
"The federal OBPS and AB's TIER system levy the carbon price on roughly 10% of a large emitter's GHGs. At a $50 marginal price, producers pay less than $1 per tonne of CO2 equivalent on their total production." (Corporate Knights)
"Canada needs to make Big Oil pay their fair share" (Corporate Knights, March 7, 2022)
"Revisions to PBO's carbon tax analysis will 'vindicate' government, minister predicts" (CBC, May 29, 2024)
"Guilbeault says PBO report was 'flawed,' PBO says correction probably won't change conclusion"
"The PBO says that while it intends to publish a corrected version, its original conclusion — that carbon pricing will have a net negative impact on the economy — probably won't change.
"'It is not something that should or will alter the conclusions of the report because the industrial emissions are exempt at 80 per cent,' Parliamentary Budget Officer Yves Giroux told CBC's Power and Politics. 'For big emitters, it is only the 20 per cent that is subject.
"'So overall, the economic impact will still be negative.'
"… Now, in an update to that report, the PBO acknowledges that its economic analysis inadvertently included the industrial pricing system that applies to heavy emitters. The PBO says it will update its analysis in the fall to correct the error.
"But Giroux said that update may not significantly alter the findings because MOST INDUSTRIAL EMISSIONS ARE EXEMPT FROM CARBON PRICING. MAJOR INDUSTRIAL EMITTERS ARE EXEMPTED because they face international competition from businesses that operate in jurisdictions without a carbon price."
As the PBO pointed out (May 2024), the industrial carbon price applies only to 20% of emissions maximum. 80% of emissions are exempt. For some industries, only 5-10% of emissions are exposed to the carbon price. (90-95% exempt.).
How can Canada's industrial carbon pricing "do more than any other policy to cut Canada’s emissions" if 80% of emissions are exempt?