There must be a misunderstanding. Some will say that climate change is one of the most serious existential crises humanity has faced. However, experts consider pricing greenhouse gas (GHG) emissions as one of the best ways to fight against them. To make its own carbon tax go down better with Canadians, the federal government returns all its revenue to them, with the result that four out of five households receive more money than they pay it.
However, rarely have we seen such a group attack against the federal carbon tax. Formerly favorable to this use of market logic, the conservative opposition in Ottawa now promises to abolish it if it is elected, as the polls predict. In the meantime, seven of the eight Canadian provinces where it applies directly reject its increase planned for next month. As for Canadians, many admit to not knowing, but more of them oppose carbon pricing than support it, with the exception of Quebecers.
A signal in the wallet
Every time experts look at the issue, they come to the same conclusion. One of the best ways to encourage consumers, businesses and nations to reduce their GHG emissions is to put a price on it that will then weigh on each of their individual decisions, encouraging energy conservation and research. greener alternatives. The beauty of it is that this pricing also makes it possible to generate income which can go to financing all kinds of public missions, including the green transition.
Even if it does not directly set a limit on pollution, a carbon tax, like the one chosen by Ottawa, often appears to be the simplest formula because it does not require the establishment of a vast cap system and exchange of GHG emission rights (Carbon exchange), as in Quebec or in Europe.
But to be heard and have its effect, the price signal must be strong enough. The recommended target is US$130 (CA$176) per tonne of GHGs for 2030 and US$235 (CA$318) in 2050 — but US$280 (CA$380) if we had to rely only on carbon pricing to achieve carbon neutrality, the International Monetary Fund (IMF) reported in October. This signal must also be predictable and credible in the long term. Otherwise, why impose sometimes arduous and costly changes if we have reason to believe that the tax is not here for good?
Ottawa’s choice
In Canada, the federal tax applies wherever equivalent carbon pricing is not in effect. It must increase from CA$65 to CA$80 per tonne on the 1ster April, on the way to $170 in 2030-2031. Rather than keeping the revenues, which were expected to approach 12 billion last year, Ottawa immediately transfers them where the tax applies, 90% to households, the rest going to businesses, farmers and indigenous groups.
Eight out of 10 households would thus receive more money than what the tax costs them. Generally speaking, the more modest income households have, the more they gain from the exchange rate, reported last year the parliamentary budget director in Ottawa, Yves Giroux.
The picture changes when we take into account the negative impact of the federal tax, particularly on employment and investment income, he continued. Once this economic impact is added, we see, on the contrary, that most households — with the exception of the poorest 20% — suffer a net loss, which could range from $16 to $8,900 in 2030-2031, depending on the province and family income.
The most recent research tends, on the contrary, to attribute a positive long-term economic impact to the fight against global warming, if only in terms of reductions in health costs, road congestion or adaptation, say the experts. And even if we do not take these factors into account, doing nothing or any other form of struggle would also have an economic cost, admitted Yves Giroux.
Opponents of the federal tax add that it only increases the burden on consumers struggling with galloping inflation. A recent IMF study on the European case, however, concluded that the impact of carbon pricing remains extremely modest in this regard and adds that nothing prevents governments from temporarily compensating it in times of crisis.
Canada in the world
According to the latest data, only 49 countries have adopted a carbon pricing system while 23 others are considering it, the IMF noted this fall. These systems only cover about a quarter of global emissions at a far insufficient average price of US$20 per tonne.
Canada performed rather well in this regard in 2021, with more than 70% of its GHG emissions covered by an average price of US$45 per tonne. It was far ahead of its neighbor the United States, where only a few states, including California, have similar systems, or China (41% of GHGs at an average price of $8.20 per tonne), but well behind Germany (87% at $67) or Sweden (76% at $111).
Ottawa estimates that carbon pricing alone will allow Canada to reduce up to a third of its emissions in 2030.
Fearing that this will end up giving a commercial advantage to countries that drag their feet on the matter, Europe is testing a carbon tax at its border that will apply to imports from countries where carbon pricing would not be not sufficient.
What options?
As effective as carbon pricing is in reducing GHGs, experts admit that it cannot, on its own, solve all the problems or correct all the market failures. Moreover, we are forced to admit that it is proving difficult for governments to sell to their populations, the IMF noted a year ago. Generally, subsidies for clean technologies are favored, followed by tighter pollution regulations and carbon pricing. In the latter case, the level of support would be 36% in Canada (43% in Quebec), compared to 44% of people opposed (33% in Quebec) and 20% of undecided (24% in Quebec), according to a survey by the firm Abacus carried out in January.
The degree of support depends heavily on the perception one has of the effectiveness of the proposed measures, their fairness as well as the other positive impacts they could have in terms of air quality, improvement health, job creation and reduction of road congestion, explains the IMF.
People may prefer subsidies, but these too will have to be financed in one way or another by governments which will not be able to carry the burden of the green transition alone. According to the International Energy Agency, achieving carbon neutrality by 2050 will require investment in the green transition to increase from US$400 billion to an amount ranging from 2000 to 2500 billion per year over the horizon. of 2030.
As for remaining idle in the face of global warming, the costs, not only economic, but also environmental and human, would simply be incalculable.