The Carbon Tax is Dead: What Comes Next?

Mark Carney, in his initial action as prime minister, eliminated Canada’s carbon tax on fossil fuels. This move was a key promise made during his campaign, aimed at removing a contentious issue from the Conservative agenda. While this decision was stark and attention-grabbing, it left lingering questions about the future direction of Canada’s climate policy.

First, there is the important issue of what will take the place of the fuel levy to help Canada reach its climate targets. Achieving these goals is an uphill battle. The carbon tax was responsible for as much as 14 percent of the expected emission reductions over the next five years, making it a vital component of Canada’s climate strategy. With its removal, replacing this revenue and its mitigating effects with alternative approaches that are often more expensive, is challenging. It's worth noting that low-income Canadians may suffer the most from the loss of rebates associated with the carbon tax, which previously helped offset costs.

On a positive note, there are still numerous untapped climate policy options that could not only replace the carbon tax but also improve affordability for Canadians. Initiatives such as enhancing incentives for energy-efficient homes can lower energy bills for families. Further, introducing programs like rebates on used electric vehicles could make these vehicles more financially accessible for low-income drivers.

The recent climate progress report presented 31 potential new measures designed to bolster Canada’s climate goals. However, many of these new policies will be less effective without a carbon tax in place to motivate consumers to reduce their emissions voluntarily.

Next, we address the output-based pricing system (OBPS), the secondary aspect of Canada’s carbon tax that targets high-emission companies and electricity producers. In response to Carney’s announcement on the fuel levy, the Conservative party pledged to abolish the OBPS as well. There has been considerable debate and lobbying about this tax, indicating that the Conservatives might see this as a political opportunity to reclaim ground lost in discussions about carbon taxes.

It's essential to recognize that the OBPS operates differently than the fuel levy. Unlike the fuel tax, which is felt directly by consumers when they purchase gasoline, the OBPS affects only industrial operations. This means that most Canadians may not even be aware of its existence. Interestingly, many companies subject to this tax support its continuation, viewing it as a tool for accountability in pollution control – which makes it harder for political opponents to gather public support against it.

Moreover, the scale of the OBPS is substantial, accounting for 20 to 48 percent of the anticipated emission reductions by 2030. Its removal would create a significant gap in Canada's climate action efforts.

Nonetheless, the OBPS is not immune to change. Many Canadians oppose the consumer tax due to a lack of understanding regarding the rebates they receive, perceiving them as confusing and ineffective. This misunderstanding opens doors for criticism, and since the OBPS is similarly complex, it could become a target for the same sort of backlash.

Clear communication about carbon taxes is crucial for their acceptance among taxpayers. The failure of policy-makers to adequately explain the benefits of the carbon tax positions the OBPS at risk of facing similar public resistance.

As the situation develops, it is vital to explore future options for carbon taxation in Canada. These tools are essential in the broader effort to combat climate change effectively, especially what is seen as the most cost-effective approaches. Even with both taxes in place, projections for 2023 show that Canada is still not on the path to meet its climate targets by 2030.

In upcoming elections, all political parties have a responsibility to clearly communicate how they plan to offset the removal of carbon taxes while keeping Canada on track for its climate goals.

carbon, tax, climate