Canadian Federal plan to hike carbon taxes to $170 per tonne would restrain economy, cost jobs: report

By Jesse Snyder

The additional tax burden would in turn make it ‘unfeasible’ to provide rebates to Canadians without assuming new debt, the Fraser Institute report says

OTTAWA — Plans by the federal government to hike carbon taxes to $170 per tonne by 2030 will cause widespread layoffs and restrict economic growth, a new report claims.

A study by the Fraser Institute says Canada could lose 202,000 jobs by 2030 — mostly in Quebec and Ontario — if Ottawa follows through on plans to raise the levy. It would also cause a 2.1 per cent drop in Canadian GDP, or roughly $44 billion in losses in today’s currency.

The additional tax burden would in turn make it “unfeasible” to provide rebates to Canadians without assuming new debt, the Fraser report says, translating into higher deficits.

“The increased carbon tax will cause the rest of the tax base to shrink, offsetting much of the new tax revenues,” according to the report, written by Ross McKitrick and Elmira Aliakbari. “If the government rebates 90 per cent of the carbon tax revenues to households, spends the remainder, and keeps all other tax rates constant, it will permanently increase government deficits by about $24 billion annually.”

The report comes amid a wider debate around whether successive carbon tax hikes would eventually restrict economic growth, and as Ottawa faces particularly strong pushback on its environmental policies from fossil fuel-dependent provinces like Alberta and Saskatchewan.

Attempts to pinpoint the economic cost or benefit of carbon taxes in recent years have showed widely variable results, with some research suggesting job losses in oil, gas, and other emissions-intensive sectors would simply be replaced by jobs in clean energy sectors. Major Canadian oilsands producers and the Canadian Association of Petroleum Producers have supported carbon taxes, saying they are the most efficient method of curbing greenhouse gas emissions.

Still, the federal government’s own estimates suggest a sharp increase in carbon taxes would have some negative effect on the economy. Critics argue the levies only create additional burden for businesses and medium-income families, while failing to address rising GHG emissions among emissions-intensive countries like China and India, which far outweigh Canada in their contributions to atmospheric pollution.

The Liberals had for years refrained from committing to a carbon tax hike beyond $50 per tonne, where it was capped in their initial climate policy, unveiled in 2017.  But Ottawa dramatically accelerated those plans in December with little warning, saying it would sharply increase carbon taxes to $170 per tonne by 2030.

The government has not yet provided an updated estimate of the potential economic toll of its hugely expanded carbon tax regime. In an analysis of the plan to hike carbon taxes, Environment and Climate Change Canada claimed it would have a “very small reduction” in GDP of about 0.05 per cent — “an amount that is considerably less than the average annual revision to GDP year-over-year,” according to the department.

However, the Fraser report says those projections are “ambiguous” and represent the “entirety of the federal government’s disclosure of quantitative estimates of the economic consequences of its plan.”

The authors drew on six reports published between 1991 and 2001, five of which were conducted by the federal government, which all pegged economic losses from a carbon tax between 0.8 per cent and three per cent. GHG reductions that would be derived from carbon taxes, meanwhile, spanned between 12.4 per cent and 26 per cent.

“The claim that the policy is costless stands in sharp contrast to past estimates by government and the private sector of the costs of reducing greenhouse-gas (GHG) emissions in Canada,” the Fraser report said.

Carbon taxes are placed on consumer-facing fuels like gasoline and diesel as a disincentive to drive, theoretically lowering emissions and potentially encouraging the development of cleaner technologies. That tax regime in Canada is separate from another levy that is placed directly on heavy industrial emitters like farmers, oilsands producers and miners.

Using a “Computable General Equilibrium” model, the authors of the Fraser report sought to break down job losses and economic toll by region.

Job losses from the carbon tax would be spread across the country, with the highest toll in terms of jobs numbers in Quebec and Ontario. Ontario’s job losses would be the greatest at 98,766, followed by Quebec (42,318), Alberta (30,544) and British Columbia (22,919).

In employment and GDP losses, Alberta would be the biggest loser under projected carbon taxes in 2030, with 1.1 per cent and 2.5 per cent losses, respectively. Saskatchewan and Ontario were among the next most affected provinces, with a 2.2 per cent hit to GDP and a 1.1 per cent drop in employment.

Unlike reports that have been more supportive of carbon taxes, the Fraser Institute did not calculate the costs of potential “adverse weather events” like floods or fires, saying it was “incorrect to ascribe benefits to greenhouse-gas policy using the so-called ‘costs of inaction’ approach.” Environmental policy groups, as well as the Liberal government, argue that the toll of continued climate change effects far outweigh the near-term downsides associated with carbon taxes, which ultimately target emissions-heavy industries.

A 2019 report by the Smart Prosperity Institute, a pro-carbon tax outfit, details a starkly different picture in terms of both climate change and the economy should carbon taxes be successively increased in Canada.

The group estimates an additional 19,000 jobs in the construction industry and another 20,000 jobs in other sectors would be created by 2025 “due to higher carbon prices,” with business investment growing $12.5 billion and household spending rising by $5.7 billion.

This article appeared on the National Post website at https://nationalpost.com/news/politics/federal-plan-to-hike-carbon-taxes-to-170-per-tonne-would-restrain-economy-cost-jobs-report


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