At best, there may be acceptance if the tax was like the HST: transparent and accountable. This is unlike the carbon tax that is complicated, expensive, and increasing, which makes it difficult to explain, and understand, even for politicians. So, it should not have come as a surprise when Canada’ Parliamentary budget officer, Yves Giroux, said he was troubled by what he described as the selective use of facts by members of the opposition parties, and other critics from his new financial analysis of carbon pricing. Yes, Giroux’s report needs to be put in context alongside the costs of all climate policies, including the cost of doing nothing. But, more work needs to be done. Here is why.
The federal carbon tax is a tax on consumers of fossil fuels who are polluting and contributing to GHG (greenhouse gas) emissions, a major cause of the climate crisis.
The carbon tax qualifies as a tax because it is collected by CRA (Canada Revenue Agency), the government agency that collects all federal, and all provincially harmonized taxes, including the HST. The CRA also pays applicable government benefits by direct bank deposit to taxpayers.
Like the GST/HST, the carbon tax is a consumer/user tax. The tax is applied only when consumers buy fossil fuels like gasoline, diesel, and natural gas. If you ride a bicycle, or walk, you are not charged the carbon tax. It is a consumer’s choice to buy, or not to buy items subject to the carbon tax. The collected taxes go into the government’s general revenue, and are spent to pay for the government’s policies.
Gasoline, and other fuels have been taxed over the decades by different levels of governments looking to cash in on a popular item that generates general revenue, but they are not a tax specifically on carbon. The difference between the two is the intent.
The carbon tax has been around for a while. In 2008, the province of B.C. (British Columbia) was the first in North America to implement a broad-based carbon tax on consumers’ purchase of gasoline and diesel fuels starting at $10/metric tonnes. The B.C. Ministry of Finance collected the carbon tax which was used to reduce the provincial income tax. This changed in 2019 when it was modified to meet the federal government’s standard. Since 2022, the collected carbon tax is credited back to the people of B.C. and to fund green initiatives.
However, with the 14 years of experience operating the carbon tax, B.C. has not collected any data nor provided any accountability of how much tax has been collected, and spent, nor how effective the tax has been in reducing GHG emissions. They have only provided estimates.
When the Trudeau government made the commitment to reduce Canada’s greenhouse gas emissions, it gave the provinces and territories the option to come up with their own custom programs, which would also allow them to keep the monies collected, subject to federal approval. If not, then the federal government would impose its back-stop carbon pricing system, which included a carbon tax.
Currently, there are 8 provinces and territories subject to the federal carbon/fuel tax. They are Ontario, Manitoba, Yukon, Alberta, Saskatchewan and Nunavut. Nova Scotia, Newfoundland and Labrador,. Prince Edward Island will be required to join starting July 1, 2023 because their provincial programs no longer meet the federal standard., and New Brunswick has requested the federal government to start applying the carbon/fuel tax in the coming months.
In 2023, the federal carbon/fuel tax will be applied in all provinces and territories except for British Columbia, the Northwest Territories, and Quebec (its Cap &Trade program was linked with Ontario’s C&T program before it was dismantled by the Ford government).
Yes, the Carbon Tax Works, but People Don’t Like Taxes
The carbon tax is a user-tax on consumers who generally respond quickly to price signals and change their purchasing behaviour accordingly. The problem for politicians is that these consumers are also voters who will vent their anger on them when the price of gasoline, diesel, and natural gas increase. Often politicians from the other parties add fuel to the fire to incite voter anger at the government.
To minimize the political backlash to a new tax, the Trudeau government reimburses about 90% of the collected carbon tax directly back to taxpayers. How it is done is noteworthy. It uses CRA to administer the direct reimbursement to taxpayers.
Knowing how unpopular rising taxes are with voters, even when directly reimbursed to taxpayers, the Trudeau government switched from a tax credit on a taxpayer’s yearly income tax return when the carbon tax was first implemented in 2019 at $20/metric tonne to a quarterly direct bank deposit starting in 2022 when the carbon tax was increased to $50/metric tonne. This way, voters can see the cash tax rebate in their bank account, and use it immediately. This system appears to be operating smoothly as it was a non-event when the carbon tax was increased from $50 to $65/metric tonne on April 1, 2023.
Canada promised to reduce its GHG emissions by 30 per cent from 2005 levels by 2030. To do so, the carbon tax will have yearly increases of $15 starting in 2023 to reach $170/metric tonne in 2030.
Although the 2030 price of $170/metric tonne is high, it is nothing compared to the latest current social cost of carbon that the federal government has calculated to be $261/metric tonne, an almost five-fold increase revision to its 2023 estimated cost of $57/metric tonnes. It looks like the federal government is collecting better data. But, more needs to be done in a hurry if the social costs are to be manageable.
More Transparency and Accountability is Needed
The problem with the carbon tax, as shown by British Columbia, is the lack of accurate information on its effectiveness. Like B.C., the federal government has only provided estimates, which isn’t good enough.
To provide greater transparency and accountability, the carbon tax charged to consumers needs to operate like the GST/HST with a separate line on receipts showing the carbon tax charged on the purchase. The separate line will allow consumers to add up the carbon tax they’ve paid, and compare it to the government rebate they’ve received, and act accordingly.
It would be easy for businesses to show consumers the carbon tax they’ve been charged as businesses are already set up with CRA for the GST/HST. CRA can set up this same arrangement for the carbon tax.
Knowing how important this feedback information is to educating people, I contacted Enbridge, my natural gas provider, to show on my bill the carbon charge (it was not a tax) when Ontario had its C&T program. It took several requests, but they did show the carbon charge portion of my bill as a separate line item until the C&T program was cancelled. To my surprise, it was reactivated as the “federal carbon tax” when the tax was implemented.
This information line has been helpful for me to determine if I’m coming out ahead with the carbon tax rebate. For Enbridge, it means fewer angry customers to deal with when the explanation for the rising cost is already there in their bill.
The federal government would gain, too, by providing this additional information to consumers. From CRA, the federal government would have accurate data from which to determine the amount of consumer generated GHG emissions. This useful and accurate information would help shape the government’s policies to reach its 2030 goal.
In summary, the carbon tax is an effective tool to change consumer behaviour to reduce fossil fuel consumption. A lot of things have been done right in its implementation to mute consumer/voter anger at a new tax that is expensive and increasing , but the federal government needs to do more to get the accurate data it needs. Using CRA to get this information should be done sooner than later to quickly bring down Canada’s GHG emissions.
Sharolyn Mathieu Vettese
President
SMV Energy Solutions
www.smvholdings.com
SMV Energy Solutions provides simple smart solutions that conserve energy.