Recent news stories have revealed internal tensions facing the Ontario Government over how to best implement a carbon price. A number of ministers are apparently deeply concerned about the economic impact of removing $1.9 billion from the economy, and proposing a wide range of ways to protect consumers and companies from these higher costs – including subsidies for manufacturing, electricity rebates, and other programs.
Unfortunately, it seems that the strategies being considered involve more of the same big government thinking that led to Ontarians paying $37 billion extra for electricity between 2006-2014, as reported by the Auditor General. The current plan to reinvest all of the cap and trade program’s revenue into government programs will see government once again picking winners and losers. No wonder ministers are concerned about pitting the auto-sector against electricity consumers against environmental groups.
Let’s be clear – putting a price on carbon emissions is the least expensive and most effective way to reduce emissions and address climate change. While a simple carbon tax would be the simplest way to price carbon, a well designed cap and trade system that limits exemptions and loopholes can have the same effect. But the mistake the government has made is to insist that those revenues be spent on government programs, rather than returned to taxpayers.
British Columbia has had a carbon tax since 2008, which has helped them reduce their emissions while maintaining among the strongest economic growth rates in the country. This was achieved by guaranteeing that every dollar raised by carbon pricing is returned to British Columbians in tax cuts. Even though they have a $30 per tonne tax (almost twice what Ontario is proposing), their economy has continued to thrive as they lower income and business taxes, while giving low-income households a tax credit. Several economic studies have shown that by offsetting the carbon price with tax cuts, BC’s GDP has been almost completely unaffected. This is a sharp contrast to the current tax and spend plans of the Ontario government.
Ontario’s political parties are now unanimous – climate change is real, it is man-made, and we need to do something about it. All parties support pricing in order to reach our emissions targets – but the sticking point is how the money is spent. The Liberals are rightly concerned about a backlash from businesses and consumers as cap and trade’s $1.9 billion in costs are downloaded to Ontarians.
Instead of getting caught up in choosing which Ontarians or which sectors are worthy of support, the government can learn from the example of British Columbia and build a program that delivers broad-based tax cuts across the entire economy. If Ontario uses its cap and trade revenue to give all Ontarians broad tax relief it can address the legitimate concerns of Ontario’s businesses, families and low income households by allowing them to decide how best to invest their money to adapt to a new, carbon-priced economy. Making carbon pricing revenue neutral is not only the politically smart thing to do – it’s the right thing to do for the economy as well.