Will Trudeau's carbon tax kill jobs? A look at the evidence from B.C.
Opposition Leader Andrew Scheer rang in the new year by vowing to fight the Liberal government’s plan to impose a carbon tax on consumers in all provinces that don’t already have one.
Prime Minister Justin Trudeau argues that taxes on things like gasoline and natural gas will encourage consumers to use less of these climate-changing fuels without damaging the economy.
Scheer, meanwhile, told a crowd at a discount store in Regina on Tuesday that the carbon tax will shutter factories, kill jobs and push up prices on essentials like groceries.
“While millionaire Liberals like Justin Trudeau may want higher gas prices, hardworking Canadian families definitely do not,” Scheer said while standing in a Giant Tiger.
Scheer added that he doesn’t think Trudeau’s plan will slow climate change.
“If a factory closes down here and pops up in China where they don’t have access to clean technology, clean energy, then the world is not better off,” he said.
Four provinces – Ontario, New Brunswick, Saskatchewan and Manitoba – agree with Scheer that carbon taxes aren’t the answer. The former three are fighting the federal plan in court.
So, who’s right? Is the carbon tax a job-killer that makes no difference to emissions as the Conservatives claim, or is it a relatively painless way for Canadians to help the environment as the Liberals suggest?
To answer that, economists have studied British Columbia, where a centre-right Liberal government imposed North America’s first broad-based carbon tax back in 2008.
Duke University’s Brian Murray and University of Ottawa Economist Nicholas Rivers and have looked closely at the data coming out of B.C. The evidence, it seems, is mixed.
How does it work?
B.C.’s tax covers most of its economy and started at $10 a tonne in 2008, rising to $30 a tonne in 2012. It went up again, to $35 a tonne, in April. It will rise once more to $40 a tonne this April.
A $30-a-tonne carbon tax is equivalent to about 6.7 cents/litre of gasoline (4.4 per cent of the purchase price), 7.7 cents/litre of diesel fuel (5.1 per cent of the cost) and 5.7 cents/litre per cubic metre of natural gas (33.9 per cent of the final cost).
B.C. aimed to prevent potential job losses by using some of the taxes raised to cut corporate taxes. They also opted to give rebates to lower-income people to help them cope with higher heating and transportation bills.
The Trudeau government’s plan is similar. Ottawa plans to impose a $20/tonne carbon tax on Ontario, Saskatchewan, New Brunswick and Manitoba starting on April 1. Meanwhile, it will offer “Climate Action Incentive” tax credits. According to Ottawa, the average Ontario household will shell out about $244 more as a result of the carbon tax in 2019, but will get a $300 tax credit that more than covers the cost of the carbon tax.
Did the B.C. tax cause emissions to fall?
Rivers and Murray researchers looked at a several studies that examined how emissions changed in the early years of the tax using fuel sales as a proxy.
One study found a roughly 19 per cent reduction in per capita fuel sales between 2008 and 2012. Aviation fuel, which wasn’t taxed, was consumed just as much, suggesting consumers really were cutting back on driving a result of the carbon tax. That study estimated a nine per cent reduction in greenhouse gas emissions.
Overall, Rivers and Murray concluded that B.C.’s emissions were five to 15 per cent lower thanks to the carbon tax.
Is the tax enough to make a difference?
Canada represents only about 1.6 per cent of global emissions. It’s the Liberals’ view that every country must do its part to slow down climate change, which is why they agreed in 2015 in Paris to reduce emissions to 30 per cent below 2005 levels.
Nicholas says that Ottawa’s current carbon tax alone won’t get Canada even close to that goal. In order to meet the target, Nicholas says the carbon tax would need to be raised “north of $100 per tonne, maybe even $200 a tonne.”
But he says the targets could be met if the tax is kept at around $50 a tonne and combined with other policies like phasing out coal-fired electricity (a step Ontario has already taken) and stricter fuel standards for cars and trucks. The Liberals are planning both.
The Conservatives have yet to reveal their plan to cut emissions but Scheer did offer one small hint on Monday.
“Our plan will speak to Canada’s ability to help reduce global emissions by capitalizing on our clean technology, our cleaner energy,” he said.
What was the effect on economic growth?
The Trudeau government points out that B.C., Alberta and Quebec all have carbon pricing schemes and they were “the fastest-growing” provinces in 2017 when measured by Gross Domestic Product (GDP).
Rivers and Murray point out that B.C.’s GDP growth outpaced the rest of Canada’s slightly in its first five years with the tax, but it’s possible B.C. would have grown even faster without the tax.
“When I’ve crunched the numbers it looks like overall there’s basically a wash,” Rivers said. “If there was an impact, I would guess that it would be slightly negative."
B.C.’s Ministry of Finance said in 2013 that they believe the carbon tax “has had, and will continue to have, a small negative impact on GDP.”
Were some sectors hit particularly hard?
Some fuel-intensive industries in B.C. were particularly concerned about the carbon tax making them uncompetitive with businesses in jurisdictions like the United States that didn’t have the added cost.
Nicholas says that’s a “really valid concern,” and it’s why B.C.’s tax – like the federal Liberals’ tax – has been tweaked to reduce the harm on some large emitters that employ many Canadians.
In B.C., farmers have been exempted from the tax since 2014. The cement industry, meanwhile, has received rebates to help it cope. Nicholas says he hasn’t seen evidence either sector has been harmed.
How do British Columbians feel about the tax?
Rivers and Murray looked at polling data from the firm Environics, which has asked more than 1,000 Canadians annually whether they support or oppose the tax.
When the tax was implemented in 2008, about six in 10 British Columbians opposed it. That was roughly the same level of opposition to carbon taxes as in the rest of Canada.
By 2013, only about 40 per cent Canadians opposed carbon taxes. Disapproval of the tax had fallen even lower in B.C., where only about 35 per cent said they were opposed.