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Are Canadians paying ‘wacko’ high gasoline taxes?

#2450 of 2549 articles from the Special Report: Race Against Climate Change
Graphic by Barry Saxifrage representing gasoline taxes in Canada and the OECD nations.

Canada’s Opposition leader, Pierre Poilievre, has repeatedly attacked our national carbon tax-with-rebate policy. This policy places a rising fee on many sources of climate pollution, including the emissions from burning gasoline. That’s the “tax” part. The “rebate” part is cheques sent to Canadians that more than cover the costs for about 80 per cent of families.

Recently, Mr. Poilievre expanded his “axe the carbon tax” campaign to include all federal taxes on gasoline. He claims Canadians are overburdened by such “radical, wacko” policies and has called for a “gas tax holiday” in which all federal gas taxes are suspended.

Are Canadians paying crazy-high gasoline taxes?

Here’s a series of charts on the topic. Take a look and decide for yourself.

What do our international peers pay?

Let’s start by looking at what others pay in gasoline taxes across the three dozen nations of the Organisation for Economic Co-operation and Development (OECD).

Are Canadians paying “wacko” high gasoline taxes? Not compared to most other OECD nations. #gastax #CarbonTax #GasTax #cdnpoli @bsaxifrage crunches the numbers for @natobserver

On my first chart below, each nation has a blue bar that shows the size of their gasoline tax. Can you guess which one is Canada?

Chart showing gasoline taxes in OECD nations (without nation names)

If you picked the third-smallest bar, you’re right.

Hey, every day is a gas tax holiday in Canada.

Below is the same chart with all the country names added on, plus some highlighted prices.

Chart showing gasoline taxes in OECD nations (2022 in US$)

Canada’s gasoline tax is the third smallest in the group at $0.41 per liter. (Note: This chart shows 2022 gas tax rates in US dollars, which is the most recent data available from the OECD.)

You can easily see how little we tax ourselves compared to most of our international peers. That’s like giving ourselves a big gas tax holiday every day in Canada.

For example, we only tax ourselves half of the OECD average (dark blue bar) – that’s like a half-price sale all year round.

As the chart also shows, our Group of Seven (G7) peers in Germany, France and the United Kingdom tax themselves nearly triple what we do to burn gasoline – around $1.12 per liter.

And how about our oil-producing, cold-north-living, peers in Norway? They tax themselves $1.25 per liter. That works out to an extra Canadian dollar per liter above what we pay. Compared to them, we already give ourselves a permanent buck-a-liter gas tax holiday.

But, judging by the current ruckus in our country, at least some Canadians want to pay even less. And our federal gas taxes are apparently the problem.

So, let’s look at those next.

The Canadian breakdown

Canada’s gasoline tax can be broken down into four main parts. I’ve colour-coded them on the chart below.

Chart showing gasoline taxes in OECD nations (with breakdown of Canada's gas tax)

The yellow bar at the top of Canada’s stack is provincial taxes. They make up around half our gasoline tax.

Three federal levies make up the rest: a five-percent GST (light blue); a ten-cent-per-liter excise tax (dark blue); and the biggest source of controversy, our national carbon tax-with-rebate (purple).

If you are having trouble seeing the purple bar, it’s because it is tiny compared to overall gas taxes in Canada and nearly every other nation. This tiny official carbon tax is like a garden hose fighting a megafire. Yes, it helps some, but it’s far too small to stop the town from burning down.

To help illustrate just how undersized Canada’s official carbon tax is, my next chart will let you compare it to the much larger “effective carbon tax” imposed on gasoline by most OECD nations.

Official vs effective carbon pricing

For readers that aren’t familiar with effective carbon pricing, here’s a quick overview. Economists point out that there are two types of carbon pricing on gasoline – explicit and implicit. Their combined total is referred to as the effective carbon price.

Explicit carbon pricing is based on carbon content — like Canada’s official carbon tax-with-rebate. In most nations, including Canada, the explicit carbon tax on gasoline is relatively small.

Implicit carbon pricing is imposed on drivers by other gasoline taxes, such as the excise tax. These other gasoline taxes aren’t based on carbon content. But they still increase the amount that drivers pay per tonne of CO2 they emit. In economic-speak, implicit carbon pricing raises the marginal cost of emissions. In most nations, the implicit carbon tax on gasoline is relatively large.

Drivers react to the combination of explicit and implicit carbon prices. That’s why many groups, including the OECD, focus on the overall effective carbon tax that governments impose on gasoline — and not just the explicit part.

Let’s now look at how they compare.

Chart comparing gasoline taxes in OECD nations to the effective carbon price per tonne of CO2 emitted

As discussed above, the effective carbon pricing on gasoline is set by the total gasoline tax. On this version of the chart, I’ve added purple numbers indicating the effective carbon pricing.

For example, the British gasoline tax is $1.12 per liter. That works out to $475 in tax per tonne of CO2 emitted. So, their effective carbon tax rate on gasoline is $475 per tonne of CO2. That’s a very big financial incentive for British drivers to emit less climate pollution out of their tailpipes. As we will see below, that’s what happens.

In contrast, Canada’s much lower overall gasoline tax imposes a much lower effective carbon tax on Canadian drivers — a whopping $300 less per tonne of CO2 emitted than what British drivers pay. So, it is not surprising that Canadians dump a lot more climate pollution out of our tailpipes.

Canada’s official (“explicit”) carbon tax rate is smaller still. I've shown this rate with a horizontal purple line on the chart. On April 1, our official carbon price rose to $80 per tonne of CO2 (US$60 on the chart). As you can see, our official carbon tax creates a very tiny price signal compared to the effective carbon price most governments put on gasoline.

The tailpipe super-emitters

It’s basic economics that if you make it cheaper to pollute, people will pollute more. To show how this plays out with gasoline taxes, I’ve added emissions from transportation to the chart. Specifically, each nation's red dot shows how much CO2 they emit per capita from transportation. The red line indicates the level of two tonnes of CO2 per capita.

Chart comparing gasoline taxes in OECD nations to per capita transportation emissions

On the left side of the chart, you can see that most nations with high gasoline taxes (i.e. high effective carbon pricing) emit around two tonnes per capita or less. The Netherlands have the highest gasoline tax in this group — and the lowest transportation emissions at just 1.5 tonnes per capita.

On the other side of the chart are nations that keep their gasoline taxes very low — and thus keep their effective carbon price for drivers very low as well. Here we find the tailpipe super-emitters, including Australia, Canada and the United States.

Canadians emit twice as much (4.3 tonnes of CO2) as our British, German and French peers. The Americans emit even more than we do: 5.3 tonnes per person. And look, Americans tax their gasoline even lower than we do.

Canada plans to continue raising its official carbon tax-and-rebate price. But not very much — only $0.19 per liter by 2030. Such a small increase would still leave our effective carbon price on tailpipe emissions far below today's OECD average. And we'd need to increase our official carbon price by hundreds of dollars more than planned per tonne of CO2 just to match the current incentives for most of our European peers.

Low gasoline taxes lock in climate failure

Low gasoline taxes lock in climate failure by encouraging people to buy hyper-polluting cars and discouraging them from switching to cleaner alternatives.

Fuel economy of average new passenger vehicle in Canada and several major economies

Our extremely low gasoline taxes are a major reason Canadians and Americans choose to buy the world’s most climate-polluting new cars.

New cars last for a decade or two. And our average new fossil fuel burner will dump 60 tonnes of CO2 from its tailpipe over those years. That locks in climate failure.

As this chart also shows, our British peers buy far cleaner new cars. A major reason is the additional $300 per tonne tax on tailpipe CO2. That means a British driver pays $18,000 more to fuel such a polluting car. Canadians would also buy cleaner cars and trucks if we taxed our pollution how they do.

How did British gasoline taxes get so high? Back in 1993 — yeah, 30 years ago — the Conservative U.K. government of John Major doubled Britain's gas tax in an effort to reduce climate pollution. He introduced his Fuel Duty Escalator policy, saying: “The largest contribution to the growth in United Kingdom carbon dioxide emissions in the coming years is expected to come from the transport sector… (this escalator will) provide a strong incentive for motorists to buy more fuel-efficient vehicles.”

We are now three decades deeper into the climate crisis and megafires, floods, droughts and superstorms have started to hammer away in earnest. The response from today's Canadian conservative politicians is to axe our relatively tiny gasoline tax in half.

What do you think?

Should Canadians make it even cheaper to pollute than we already have?

Canada and G7 climate pollution changes since 1990

I’ll wrap up this article by stepping back to look at the bigger picture. My final chart shows what the G7 nations have done with their total climate pollution since 1990. This is based on the just released 2022 data from each nation (plus the 2023 numbers when available).

Canada is clearly the climate rogue in the group. We’re the only nation still emitting more than in 1990. A lot more.

Is this who we want to be as Canadians? Stuck high up on the crumbling climate cliff as our peers are far below on their way down to safety? If not, we need to burn a lot less gasoline and diesel — because producing and burning them has caused almost half our national emissions increase so far.

While we've been increasing our climate pollution, the Europeans have cut theirs by a third. Germany and the U.K. have done the hard work to cut their emissions in half. And both have reduced their transportation emissions along the way.

I hear our conservative politicians talk favourably about the need for cheaper motor fuel and a holiday from paying gasoline taxes.

What I don’t hear them talk about are the kind of cars and trucks that actually deliver these things to Canadians today — battery electric vehicles (BEVs).

Hundreds of thousands of Canadians already own a BEV. These BEV owners don’t pay gasoline taxes because they don't burn gasoline. Instead, they fuel up with much cheaper electricity produced right here in Canada. As a big bonus, BEV drivers aren’t forced to pump toxic air pollution and perpetual climate misery out of their tailpipes just to get around.

Axing Canada's carbon tax will increase climate pollution.

Switching to Canadian electricity for driving will cut climate pollution. And it will also save Canadian drivers far more money every time they fill up than any gas-tax-holiday ever will.

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ENDNOTES

How to calculate the relative cost and emissions of filling up with gasoline vs electricity

A general rule of thumb is that 2 kWh of electricity drives an EV as far as one liter of gasoline drives a gasoline-burning car. For an in-depth explanation on this, see here.

This handy 2-to-1 ratio can be used to quickly estimate both relative fuel costs and relative fuel emissions.

FUEL COSTS — In Vancouver, where Conservative leader Pierre Poilievre recently attacked pollution pricing, electricity costs $0.14 per kWh. The 2-to-1 ratio means EV drivers there pay six times less to fill up their car – the equivalent of $0.28 per liter. That’s because 2 kWh costs $0.28 while a liter of gasoline costs around $1.80. Even with a federal gas tax holiday, gasoline-burning drivers would still pay five times more to fill up than EV drivers. So, if the goal of conservative politicians is to make driving more affordable for Canadians, shouldn’t they do everything they can to get Canadians into EVs?

EMISSIONS — In Vancouver, electricity generation emits around 0.01 kgCO2 per kWh. The 2-to-1 ratio means driving on electricity there is 100 times less climate polluting than burning gasoline. That’s because 2 kWh emits 0.02 kgCO2 while one liter of gasoline emits 2.356 kg CO2. So, again, if the goal of conservative politicians is to help Canadians get around with minimal damage to our kids’ climate future, then why aren’t they pulling out the stops to encourage Canadians to dump their gas guzzlers?

As it is, Canadians are well behind the global average in switching to all-electric cars and trucks.

How to calculate effective carbon pricing

To quickly estimate the effective carbon price imposed by gasoline taxes, multiply the tax-per-liter by 400. For example, a gas tax of $1 per liter adds up to $400 per tonne of CO2 emitted.

The math: burning one liter of gasoline emits 2.356 kg CO2 — burning 424 liters emits 1,000 kg CO2 (one tonne). So, the tax paid on 424 liters equals the tax paid per tonne of CO2 emitted out of the tailpipe.

For Americans, multiply tax-per-gallon by 100 (or more precisely by 112).

Comments

In reply to by John Brennand