Improve Carbon Tax, Don’t Reject It

The Fraser Institute’s Matthew Lau acknowledges in his February 9 Toronto Sun column (“Canadians should reject Trudeau-style carbon taxes”) that there is a strong case to be made for taxing carbon emissions. 

We couldn’t agree more. From economists to oil company executives, there’s broad agreement that carbon pricing is the most cost-effective way to reduce emissions. 

Mr. Lau disagrees with how the federal government has implemented carbon pricing. Certainly there are fair critiques of the government’s policy. That’s one reason why the Conservative Party should propose a competing vision of how to price carbon. 

Offsetting the carbon tax with cuts to income taxes, as Mr. Lau suggests, could be part of such a Conservative carbon pricing policy. Recent polling by Leger and Clean Prosperity shows that a carbon tax paired with income tax cuts could be a vote-winner for Conservatives in the 905 without scaring away voters in the West. 

However we think Mr. Lau is mistaken in several of his arguments about Canada’s carbon tax.

For one, his suggestion that taxing carbon has damaged the Canadian economy isn’t supported by evidence. British Columbia implemented a carbon tax in 2008, and has since enjoyed one of the highest rates of GDP growth in Canada. 

Critics of the BC tax like to point out that emissions have still risen, but that’s only because GDP and population have both grown rapidly. Emissions per capita and per unit of GDP have fallen. If BC continues to raise their relatively modest carbon tax, there’s every reason to believe their total emissions will fall.

Mr. Lau also claims that the Trudeau government has overpriced carbon emissions—based on one estimate of the social cost of carbon. But economists disagree about the assumptions underlying these estimates, which is one reason that many of them have called for a much higher carbon price than Mr. Lau seems to favour.

In the United States, for example, the conservative-led Climate Leadership Council advocates for a price over $65 per tonne this year, rising annually. 

Finally, one of Mr. Lau’s principal contentions—that the only acceptable carbon tax is one that completely replaces other policies designed to reduce emissions—ignores the fact that doing so won’t enable us to meet our climate goals, such as the net-zero emissions pledge supported by all political parties. 

Every policy has room for improvement, and Canada urgently needs fresh conservative ideas about how to improve carbon pricing.

Carbon pricing can do much of the heavy lifting to meet our 2050 net-zero target, but research shows that achieving this goal will require other complementary policies, such as production tax credits for clean technology.

This brings us to an important thing missing from Mr. Lau’s argument—the urgency of solving the climate change problem. Mr. Lau is rightly concerned about our economy, but climate change poses a huge economic risk. The Bank of Canada says that it will have a profound impact on Canada and that we must act quickly to mitigate the threat. 

The evidence is clear that a carbon price is the most affordable way to address climate change. The current federal carbon tax rebates all its proceeds to Canadians, making it revenue neutral—which the Fraser Institute supports—and thus affordable for households. 

Every policy has room for improvement, and Canada urgently needs fresh conservative ideas about how to improve carbon pricing. But dismissing a price on carbon because it doesn’t conform to a textbook version of the policy is a non-starter if we hope to meaningfully address climate change.

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