Canada axed the tax and made pollution cheap again

• One third of Canada’s emissions lose CO2 pollution pricing
• $20 billion cheaper to buy climate-polluting fuels
• 15 to 20 million more tonnes of CO2 projected by 2030
• Climate solutions undercut 

I’m old enough to remember when only right-wing climate-deniers took an axe to climate policy on day one. But Liberal Party Leader Mark Carney just joined the parade, using his first act as prime minister to “immediately” axe Canada’s carbon pollution fee from one third of the nation’s greenhouse gas emissions. 

Overnight, almost a quarter billion tonnes of Canadian CO2 that is created by burning certain fossil fuels – including gasoline, diesel, and methane gas – switched from “polluters pay” to “polluters-will-never-pay”.  Tailpipes up, Canada! 

The climate pollution fee that Canada had levied on these fuels was known by many names including “fuel duty”, “consumer carbon tax”, “climate pollution pricing on fuels” and “fuel emissions pricing”. The share of Canadian emissions caused by these fuels is shown by the pale-yellow slice on the chart below.  

Making pollution cheap again.

Canada’s CO2 pollution fee is $80 per tonne. By axing it from this set of emissions, Canada made it $20 billion cheaper to buy these climate-polluting fuels each year – and $40 billion cheaper to buy them in 2030. 

Everyone loves lower fuel prices, right? But Canada didn’t lower the price of all fuels – just the climate-polluting fuels. 

Undercutting climate solutions. 

This makes cleaner fuels -- like renewable electricity, renewable natural gas and biofuels – suddenly a lot more expensive compared to their fossil fuel alternatives. Cutting $20 billion from the price of dirty fuels significantly undercuts the economic case for climate solutions in Canada. For example, battery electric vehicles (BEVs) and heat pumps are suddenly thousands of dollars less competitive. 

Increasing emissions. 

Making it cheaper to pollute obviously means more pollution. How much more? The Canadian Climate Institute projects Canada’s emissions will be 15 to 19 million tonnes of CO2 (MtCO2) higher in 2030 without this policy, and increasingly higher after that. So far, we're not seeing any policies to prevent this.

Why not lower clean fuel prices too? 

If the problem Canadians face is high fuel costs, why isn’t the government lowering the price of clean fuels as well? The government should lower these for Canadians in a similar way – through tax breaks and subsidies. 

Canada currently provides billions of dollars in tax breaks and subsidies for fossil fuels – including $50 billion for one oilsands pipeline. In addition, Canada provides tens of billions of dollars in subsidies each year to fossil fuels by undercharging Canadians who burn them for the global warming and local air pollution damage they cause. The International Monetary Fund subsidies data lists Canada’s implicit fossil fuel subsidies at $50 billion per year. Axing the CO2 pollution fee on burning fossil fuels in Canada is just another huge government subsidy for dirty fuels. 

Now that we have a snapshot of what Canada just did, let’s look at how this latest climate policy retreat fits into its long-term track record.  
 

Part of a historical pattern …

Canada is an all-time top-ten global climate polluter – in both total amount and per person. And Canada has repeatedly promised to reduce our super-sized emissions for more than three decades now. 

So far, we haven’t. 

In fact, Canada is the worst among our peers in the elite Group of Seven (G7) – the United States, United Kingdom (UK), Germany, France, Italy, Japan and the 27 nations in the European Union.

Collectively, these wealthy industrialized nations produce half the world’s GDP and emit one third of global climate pollution. 

As you can easily see on the chart, every other G7 member has reduced their emissions to at least below their 1990 level. Even the Yanks. But not Canada. We still emit a lot more -- 16 per cent more. 

Canada’s decades of underperforming have left its citizens and business far more exposed than most of our peers.

So, it seems reckless, to me at least, for our Prime Minister to so aggressively attack one of Canada’s few climate policies was helping to lower emissions. Carney went out of his way to single out this climate policy as the first thing in Canada that needed axing. In his acceptance speech after winning the Liberal leadership, he insisted it was “not working” without mentioning that our emissions will now be worse without it. He called it a “tax on families, farmers, and small and medium-sized businesses” without mentioning that the policy put money into the pockets of most Canadians. 

When faced with a climate policy backlash, sometimes you need to pull your goalie. But why promise to play without a goalie in the future? When faced with similar backlashes, other nations have saved their climate policies by adjusting the policy to work better. One such solution has been to add a price collar to carbon pricing that removes the fee when fuel prices or inflation are high – like they were last year -- while keeping the tool available to prevent emission surges when prices eventually drop again. 

We know which climate policies have been successful for our peers. For example, the UK has the world’s sixth-largest economy and has cut its emissions in half since 1990. You can see their plunging blue line on the chart above. A key reason is their landmark Climate Change Act 2008. So far, Canada has refused to adopt this successful policy. But Mark Carney was the Governor of the Bank of England and has seen this policy in action up close. Carney should consider this tried-and-tested policy as a way to jumpstart Canada’s climate action instead of just axing it.  
 

Canada vs the provinces.

The impact of eliminating the carbon pollution fees on fuels will vary significantly between provinces. 

Here’s a chart.  (Note: Much of the data for this chart and the rest of this article came from the Canadian Climate Institute’s “2024 Independent Assessment of Carbon Pricing Systems”.)

Nationally, nearly 80 percent of emissions were covered by the federal CO2 fee. 

Canada still applies the CO2 fee to the 42 percent of national emissions that come from large industrial sources (dark orange bar on chart). 

Canada just eliminated it for the CO2 emitted by burning certain fuels. These create one third of national emissions (yellow bars). 

In some provinces, however, burning these fuels accounts for a much larger share of emissions. For example, over half the climate pollution in Ontario (ON), Quebec (QC)  and British Columbia (BC) comes from burning these fuels. That means more than half the emissions in these provinces just lost the $80 per tonne incentive to clean up. That incentive is now zero.

Hey everybody, climate pollution is now free forever. Plus, there are no limits to how much you can emit. Want to buy a gas-guzzler? How about switching your home to fossil gas heat? Just go for it. 
 

BC shows how it is done…

I want to give a special shout out to the BC New Democratic Party (NDP). 

As my next chart shows, BC emissions have surged 26 percent higher since 1990. This province is doing an even worse job of cleaning up than Canada overall, helping to drag our nation backwards.

And notice how all the increase in BC’s climate pollution happened in years when the BC NDP was in power (orange lines). A perfect record.

Nearly two decades ago, a different political party in BC enacted the nation’s first broad CO2 pollution fee, locally known as the BC Carbon Tax.

The BC NDP tried to kill it from the start, running the original “Axe the Tax” political campaign back in 2008. They lost that election. But they’re in power now. And even though Prime Minister Carney’s federal action didn’t impact the province’s 17-year-old carbon tax law, the BC NDP Premier David Eby quickly killed it anyway. This action removed “polluter pays” fees from over half the emissions in the province. As a bonus, BC’s deficit will increase by nearly $2 billion per year because of lost carbon tax revenue.  

Even before taking the axe to one of the province’s signature climate policies, the BC NDP government was struggling to cut emissions. How bad is it? The government still won’t release the status report on its CleanBC plan that was legally required to be made public last summer.  
 

Canada’s industrial CO2 pollution fee

The Conservative Party, led by Pierre Poilievre, is celebrating their stunning messaging victory that paying for climate pollution is not something Canadians should do.  

Flush with that success, Mr. Poilievre is now aiming to kill off Canada’s remaining “polluter pays” fee on industrial emissions. 

So, now’s a good time to review how this policy works. As noted above, Canada’s CO2 pollution fee still covers the emissions that come from industrial sources. Nationally, that is around 42 percent of emissions. 

Across the provinces, the percentage ranges from just six percent of emissions in Prince Edward Island (PE) up to 62 percent in Alberta (AB), home to the gargantuan oilsands industry. In Ontario, Quebec and BC it’s only about one quarter of emissions.

What many people don’t realize is that while all these industrial emissions are technically “covered” by the CO2 pollution fee, only a small percentage of industrial emissions are taxed.  I’ve indicated this percentage on the chart using a darker orange color. The rest of industrial emissions get some form of free allowances. 

Limiting the emissions that industry has to pay pollution fees on is done to limit the costs for industry to clean up. The strategy is designed to only make the most wasteful industrial emissions pay the fee. This focuses the clean-up efforts on the dirtiest areas first. 

For example, in Ontario, industry only pays the CO2 fee on nine percent of their emissions. That represents just two percent of Ontario’s overall emissions.  

Most Canadian industries seem to like this system because it significantly limits their compliance costs while still helping their products remain “climate competitive” globally. From what I’ve read, most climate economists also think it is a good system for reducing emissions. 

One thing is certain, there will always be groups pushing to axe any “polluters pay” policy. The only question is whether Canadians and their governments will fight to save our last one.

I’m going to wrap up this article with two examples of how axing the CO2 fee on fuels has undercut the economic case for climate solutions.

Example -- Gas guzzlers vs electric vehicles

Canada is struggling to reign in its transportation emissions. 

Canadians already dump twice as much CO2 out our tailpipes per person compared to most of our economic peers. A primary reason is our extremely low gasoline and diesel prices. Keeping gasoline so much cheaper in Canada leads to much higher tailpipe emissions. 

In fact, Canadians buy the world’s most climate-polluting new cars and trucks. Our average new car will burn 130 barrels of gasoline – and emit 62 tonnes of CO2 out of the tailpipe. 

The CO2 pollution fee on gasoline was supposed to discourage Canadians from choosing the “world-most-polluting” new vehicles.

But axing that CO2 fee just did the opposite. It made buying gasoline for our average new car $5,000 cheaper (math: 62 tonnes times $80 per tonne). For a new gas-guzzling SUV or pickup, gasoline is now up to $8,000 cheaper. 

That’s a big new incentive to keep buying super-polluting new vehicles. These vehicles will still be on the road in a decade or two, locking in their ultra-high tailpipe emissions.

To reduce our climate pollution, the government has been asking Canadians to buy battery electric vehicles (BEVs) instead. 

A typical new BEV in Canada will emit just one tonne of CO2 from its fuel over its lifespan. That's the emissions from generating all the electricity a BEV will use over its lifespan. That's 60 times less CO2 for driving the same distance. 

But the government just undercut the economic case for buying a clean BEV instead of a dirty gasoline burner by an average of $5,000. That’s how much the government reduced the price of dirty fuel vs clean fuel.

In a second axe blow, Canada also ended its $5,000 rebate for buying new BEVs. 

With policies like these, it is no wonder Canadians are dragging their feet in switching to clean vehicles.

Other nations, however, are making progress in reducing tailpipe emissions. They are doing it by making polluters pay. One way they do this is with much higher taxes on gasoline. For example, the UK taxes gasoline three times more than we do – which equals $300 more per tonne of CO2. We just cut our gasoline tax by $80 per tonne of CO2. 

Many nations also levy hefty "polluter pays" fees on new gas guzzlers, and use that money to lower the price of new cleaner alternatives. This is sometimes called “bonus-malus”. It doesn’t require any taxpayer funding and dramatically increases sales of cleaner vehicles. 

Once again, we have lots of examples of what works. We just aren’t adopting them in Canada.
 

Example – dirty heat vs clean heat.

My second example is the impact on heating buildings. 

In Vancouver, as in many cities, roughly half the greenhouse gases are emitted by burning fossil gas (aka “natural gas” or “fossil methane”) to heat buildings. 

The good news is that heating emissions can be reduced by more than 90 per cent in Vancouver by switching to electric heat. That’s because BC electricity, like most Canadian electricity, is nearly emissions-free.

The bad news is that climate-polluting fossil gas is far cheaper in Vancouver. And “axing the tax” just made the problem far worse.

My chart shows the general pricing problem for the city’s residents. 

Making pollution cheap again.

At the bottom of the chart, you can see that fossil gas with the carbon tax costs around six cents per kilowatt-hour. Without it, fossil gas only costs four cents. (Energy note: 1 gigajoule = 278 kilowatt-hour).

Undercutting clean alternatives.

At the top of the chart, you can see that clean electricity prices are 12 cents per kilowatt-hour, and they didn’t change. So, clean electricity now costs three times more than climate-polluting gas. That is hammering the economic case for clean heating.

Electric baseboard heat.

Heating with common electric baseboards cuts emissions by 95 per cent compared to fossil gas heat. But this clean heat now costs three times more than the dirty heat alternative. That’s a huge financial incentive to choose fossil gas heating.

Electric heat pumps.

Heating with electric heat pumps can also cut emissions by 95 per cent or more compared to fossil gas heat. And this heat source has a super-power -- it only requires one third as much electricity. 

But those savings disappear when electricity costs three times more. That’s the situation now in Vancouver. I just tried the heat pump cost calculators at BC Hydro and FortisBC and, in nearly every scenario, climate-polluting fossil gas heat is now the cheapest option. 

New gas furnaces bought now will last for decades, locking in much higher emissions through 2040 and beyond. 

Some regions, like Vancouver, are starting to ban heating systems that only burn fossil gas. However, this only applies to new buildings -- while most existing homes and buildings will still be here and still being heated in 2050 and beyond. Existing homes that currently heat with electricity can switch to fossil gas. In addition, even new buildings under the ban are allowed to have heating systems that burn fossil gas if they are "hybrid" systems which also use clean energy sources.  

Renewable gas heating.

According to both the government and the gas industry, heating with “renewable natural gas” (aka “biomethane”) is another climate-safe heating option. It is made from biomass and is exempt from CO2 pollution fees. 

In Vancouver, the commodity price for renewable gas is four cents higher per kilowatt-hour than fossil gas. 

The BC Carbon Tax was closing this price gap by slowly removing the pollution-is-free subsidy given to fossil gas heating.

But now the carbon tax is dead, and fossil gas has regained its full subsidy again. 

As a result, choosing the climate-safe solution of renewable gas is suddenly twice as expensive as the climate-polluting option of burning fossil gas. That’s a hefty economic incentive to heat with fossil gas, instead. 

Bottom line -- making it free to dump unlimited amounts of climate pollution is a big green light to do just that. Where are the policies to undo this damage?