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The carbon tax is marked by political original sin. And Canada may not have enough forgiveness, understanding or grace to save it.
Politicians seeking election and re-election know it’s best to govern according to the Santa Claus principle: Put the toys in the front window; keep the matter of how they were paid for in a backroom under poor lighting and with irregular visiting hours.
The carbon tax, beloved of eggheads such as your humble correspondent, is designed to do the opposite. It sends you a regular bill, day after day, and hides the toys in the attic.
Other carbon-reduction tools, though often more costly, have the political virtue of being opaque, unknown and unseen. The carbon tax’s original political sin is this: It is transparent, easy to understand and highly visible.
For Canadians accustomed to government by Santa Claus, the carbon tax looks like the opposite: Saint Nick running a year-round collections agency. He’ll tax you when you’re sleeping, he’ll tax when you’re aware, he knows if you’ve been bad or good, so use less carbon for goodness sake.
As I wrote in a previous column, the Trudeau government has done a terrible job of explaining how the carbon tax works. The federal levy operating in eight provinces is revenue neutral, with the money rebated back to Canadians on quarterly basis, but more than 40 per cent of Ontarians are unaware that they’re receiving rebates, according to a recent poll. Cash is being direct-deposited into their bank accounts, and they have no idea.
Fully eight out of 10 Canadians will get a rebate cheque bigger than their carbon tax payments. But that truth lives in a witness protection program, residing in a postal code somewhere between unknown and unbelievable.
Just so we’re clear, the carbon tax is a good idea if our goal is lowering emissions in the least costly, most efficient manner. It’s impossible to argue against reducing pollution by putting a price on it, unless you’re prepared to reject the idea that prices matter.
That prices matter is not just some textbook theory. It’s something we all experience, and act on, every day. Stores have sales because prices matter. You chose your home based on what you could afford, because prices matter. If you want to go to Florida in early January but the cost of airline tickets is sky high, you’ll consider alternate dates, flights and destinations – because prices matter.
And thanks to decades of high taxes on gasoline in Europe, the average European owns a vehicle that uses a lot less gas per kilometre than the average Canadian. Because prices matter.
What failed to get plugged into the economic equation is how much prices can also matter politically.
People expected to respond to economic incentives by changing their economic behaviour can also respond by changing their political behaviour. They can, for example, vote to get rid of the carbon tax.
Something similar happened in the late 1980s with the introduction of the GST. It replaced an existing tax that, among other defects, harmed our economy by raising the price of Canadian exports.
But the highly visible GST replaced a tax that was invisible to consumers. Ignorance had been bliss. The GST survived, but the Chrétien Liberals and the Harper Conservatives both made political mileage by running against it.
It’s not a coincidence that the province where carbon pricing has generated the least opposition is the one province using a form of carbon pricing that is opaque, unseen and profoundly mysterious. I’m talking about Quebec’s cap and trade system.
The pricing happens behind a curtain, through companies purchasing and selling emissions credits. That pushes up gasoline prices, same as a carbon tax. Since 2013, Quebec’s don’t-call-it-a-tax system has raised $7.9-billion. Unlike the feds, Quebec isn’t rebating the money to taxpayers.
There are many ways to lower emissions. In the United States, the Biden administration is relying on a mix of regulations and subsidies. The subsidies are expensive. At US$7,500 for each new electric vehicle, if 10 per cent of new car sales next year are electric, that will cost American taxpayers around US$13-billion. One per cent of families are getting a subsidy, today. The other 99 per cent are paying for it, eventually.
An insight of behavioural economics is that people feel the pain of financial loss more intensely than the pleasure of financial gain. Humans are highly intelligent, but we’re far from perfect calculators.
Which is a problem for the carbon tax. I want it to survive. I can see why it might not.
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