The Right Way to Cut Ontario’s Emissions

Earlier this week, a prominent Canadian environmentalist wrote that “carbon pricing alone is not sufficient to cut carbon emissions to the extent required.” He argued that carbon pricing must be backed up by complementary actions, paid for by the revenues brought in by carbon pricing. In Ontario’s proposed $15 per tonne scenario, he isn’t wrong. Priced at $15 dollars a tonne, a carbon-pricing regime would have a negligible impact on our province’s emissions. But redirecting revenue to increase government spending on hand picked “green” projects is not the only solution to the emissions reductions problem.

The piece went on to suggest that British Columbia’s revenue neutral carbon tax has not been a success, as B.C. is not meeting its emissions reductions targets and its emissions are currently rising. This argument is misleading at best. Between 2008, when B.C.’s carbon tax was brought in, and 2012, when it reached $30 per tonne, fuel use in British Columbia fell by 16%. Further, economic modelling suggests that B.C.’s carbon tax has led to a 5 to 15% reduction in emissions. Yes, B.C.’s emissions have crept up since then – because B.C. has seen its economy and population grow, and unfortunately the government has frozen its carbon price at $30 since 2012. Had British Columbia continued to increase its carbon tax, emissions would likely have continued to fall.

We agree that carbon prices will have to get higher in order for emissions to be reduced significantly. Higher carbon pricing will be necessary if Ontario and Canada are to meet the ambitious targets we have set out – 37% below 1990 levels by 2030 for Ontario and 30% below 2005 levels by 2030 Canada-wide. And indeed, a $100 per tonne or more carbon price would be significant, perhaps costing average households over $1000 and taking $10 billion or more out of the Ontario economy every year. Households and businesses wouldn’t be able to absorb such a large tax increase – unless those revenues were fully refunded as reductions in other taxes, as is the case in British Columbia. If Ontario reduced personal and corporate income taxes and gave lower income households a rebate or credit, or reduced the HST, families and businesses would have the resources they need to adjust to the carbon price. And businesses and households that reduced their carbon impact more would come out with a net benefit.

But if revenues are refunded to businesses and citizens in further tax cuts, what happens to “complementary actions” to get further reductions? Well, with the exception of sensible regulations that can be brought in at low cost and help reduce emissions and energy use – better building standards for example – for the most part, trying to reduce greenhouse gases through other subsidies or regulations costs more per tonne of carbon emissions reduced than carbon pricing. Ontario’s coal closure, for example, had an implicit price tag of $100 to $130 per tonne.

A higher carbon price that allows individuals and businesses to respond in the most efficient way possible will achieve more emissions reductions than a complicated mixture of subsidies and regulations that may create windfall profits for some but have a lesser effect on lowering emissions. Yes, the price will have to go up over time, but if taxpayers are compensated with offsetting tax reductions, it will not harm household budgets or the economy as a whole. The higher price on carbon – not subsidies – will drive the adoption of more renewable energy, electric vehicles, and more efficient buildings.

So let’s not be satisfied with a low, hidden carbon price in the form of cap and trade, with the revenues being spent on subsidies for a few chosen projects and technologies. Instead, let’s accept that carbon prices high enough to drive emissions reductions, but give people the means to pay for it and adopt new technologies by putting money back into everybody’s pockets.

This piece was written in response to an op ed published by the Toronto Star on April 13, 2016.

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