Kathleen Wynne’s attack on the Ontario PC carbon tax plan misleads voters

Opinion: Wynne is wrong when she claims the Conservative carbon tax plan will cost families more than cap and trade and do less to cut emissions


 
Ontario Premier Kathleen Wynne listens to questions from the media during an announcement which outlined a cap and trade deal with Quebec aimed at curbing green house emissions, in Toronto on Monday, April 13 2015. The plan involves government-imposed limits on emissions from companies, and those that want to burn more fossil fuels can buy carbon credits from those that burn less than they are allowed. THE CANADIAN PRESS/Chris Young

THE CANADIAN PRESS/Chris Young

Carbon taxes versus cap-and-trade will be a critical issue in the 2018 Ontario election. The opposition Conservatives propose to scrap the current cap-and-trade system and shift to a carbon tax administered through the federal government’s backstop program. The governing Liberals counter that this will cost families more and result in lower emissions reductions.

In recent comments, Ontario Premier Kathleen Wynne claimed “there’d be higher costs for home heating, filling up your car with gas. A carbon tax would add about $1,200 in additional annual costs for families with children.” She goes on to claim the cap-and-trade system is “more effective at reducing greenhouse gas emissions.”

READ: How provinces can help Canada meet its emissions target

On both the added cost to households and the effect on Ontario’s emissions, the Premier is very wrong. I’ll explain.

The Cost to Households

How much carbon pricing will cost households depends on their fuel use, and what type of products they buy. Many estimates exist; the best are found in recent analysis for the Senate of Canada by professor Jennifer Winter of the University of Calgary. She estimates the cost from a $50 per tonne carbon price for the typical household in each province. I display her results below.

fig1

For Ontario, the costs are less than $700 on average. For families with children, I estimate costs of less than $900 on average. The $1,200 referred to by the Premier is based on some recent analysis—by me (I think)—that did not try to precisely estimate indirect costs. The $1,200 should be seen as a very generous upper bound. The estimates from Dr. Winter are better. (For more on indirect costs and carbon pricing, with specific reference to Ontario, see this.)

Even worse, the Premier ignores the costs on households that the cap-and-trade system creates. With a carbon price of about $18.50, the average Ontarian household is already facing annual costs of approximately $250. By 2022, the cap-and-trade price will be higher, and household costs will potentially approach $300 per year. A carbon tax of $50 per tonne will therefore add only about $400 per household in new incremental costs relative to the current cap-and-trade system. To say the PC proposal will cost households $1,200 is false.

But that’s not the end of it. The overall cost to households depends critically on what governments do with the money. And the Liberal and Conservatives plans are very different.

READ: What if Ontario scrapped cap-and-trade for a carbon tax?

Currently, the cap-and-trade revenue funds various environmental spending initiatives currently worth about $1.8 billion, according to the latest budget figures (page 94). The PCs propose to cancel this spending and instead lower income taxes, boost the sales tax credit (which helps lower income households), provide a partial refund of child care expenses, and provide output subsidies to large emitters (which are build into the Federal program). All together, their proposal reflects a roughly revenue-neutral carbon tax plan (depending on how one views the new child care benefit; this is a debate for another time).

What does this mean for households? Using Statistics Canada’s tax policy simulator, I estimate the effects on disposable incomes of Ontario households. I find that the tax reductions are worth more than the incremental carbon costs that households will face in the transition to the carbon tax system (from $20/t to $50/t). This is true across the income distribution.

fig2

Simply put: households would tend to see higher disposable incomes under the PC proposal, not lower as the Premier claimed.

The Effect on Emissions

The Premier also noted that the carbon tax plan will result in less emissions reductions than the cap-and-trade system. While not blatantly false like the claim about household costs, this statement is still somewhat misleading.

What matters for Ontario’s emissions is not the system per-se, but the price on carbon. At $50 per tonne, the PC proposal would imposes a price by 2022 that is more than double what the current cap-and-trade system would. Will this higher price result in lower emissions? Yes. Any decision that costs more than $20 per tonne of avoided emissions but less than $50 will not be undertaken under the current cap-and-trade system, but will be under the proposed carbon tax. With a higher carbon price comes lower GHG emissions.

Quantifying this is difficult, though recent analysis by EnviroEconomics (a reputable consultancy with extensive experience in this area) does just that. They forecast 172 million tonnes of GHG emissions in 2022 with no policy action, 167 million under the cap-and-trade with a $22/t price by 2022, and 161 million under the proposed carbon tax system with a $50/t eventual price. Below I display the estimated cumulative emissions reductions for each policy.

fig3

That being said, the cap-and-trade system will contribute to lowering global emissions above and beyond reductions in Ontario, since firms in Ontario will effectively pay firms in California to lower emissions on their behalf. There’s nothing wrong with this in principle, but some are concerned about the validity and quality of those reductions in California. It also introduces other economic concerns around the capital outflow these purchases require.

Overall, the carbon price should be our measure of stringency. And on this metric, the PC proposal is more stringent than the current system.

Concluding Thoughts

As Ontario gears up for a rigorous election debate on an important policy issue, it will be increasingly difficult to distinguish good information from bad. This is unfortunate. Politicians have an important role in society and should strive to facilitate calm, fact-based public debate on important policy issues. And there are reasonable grounds for people to disagree. Some prefer the certainty over the path of future emissions that the cap-and-trade system provides, while others prefer the certainty over future costs that the carbon tax system provides. Some prefer to spend carbon revenues on energy efficiency programs and the like, while others prefer a revenue-neutral approach. Focusing on these issues is productive; misleading voters into rejecting a straw man version of an opponent’s proposal is not.

 

Trevor Tombe is an associate professor of economics at the University of Calgary, and a research fellow at the School of Public Policy.

MORE ABOUT CARBON TAX:


 

Kathleen Wynne’s attack on the Ontario PC carbon tax plan misleads voters

  1. The only reason muff diver won the last election was because the highly intelligent Conservatives ran Alolf Hudak against her with the promise of laying off everyone in Ontario. With all the power plant closures and deleted e mails, she was about as popular as Small Pox.

  2. How could any Ontario voter believe anything Wynne says?

  3. Can’t say I’m surprised with Wynne piggybacking #TrumpLies in order to hoodwink the dafter element of Ontario’s electorate.

    We can expect more of same from her.

  4. She is not only wrong but as usual lies about it. In this the PC’s are correct. Looking forward to her hopping on her broom and going somewhere else.

  5. Christian couth comes out of the closet every time Cons are going downhill.

    Like now.

  6. Cap and trade is a farce that benefits only the big corporations i.e, the polluters. Wynne needs to stop trying to win votes by acting more conservative than the Conservatives and start really doing some things to actually help the environment, education and the social welfare system instead of the billionaires.

  7. If we are at less than 2% in all this bafflegab why wreck an already faltering economy, oh, the politicians say our economy is great. Revenue neutral, I don’t believe it, any company subjected to the tax will raise its prices, how will the politicians neutralize that?

  8. Carbon Tax was considered the only solution by world meeting of scientists and economists in the Paris meeting that set the stage for where we are now. It is not a Canada nor is it and Ontario or Alberta invention! Key to the success was doing away with all coal generation, not just the tax.

    The Conservatives countered with Cap and Trade which was considered by this same group and rejected out of hand as being a kindly put; a dark horse and unkindly as a Conservative con game. Cap and Trade cannot be audited. Any numbers are thrown into the mix. Bottom line is the larger the corporation the more money that can be transferred across borders without taxes, on either side. If they are allowed to put this forward it can further us on the path of self-destruction.
    Thousands of km of the Arctic coast is melting, being washed into the ocean by wave action that is accelerated by thinning sea ice! The arctic tundra holds 1.8 billion times more Carbon Dioxide and Methane than the present atmosphere! If this cascades there is no stopping it.

    The earth travels in a concentric; elliptical orbit being influenced by the gravity of Saturn and Jupiter. 65 years ago we were in a nearly perfect circle around the sun and since have been moving away from it as we should do. But, instead of getting cooler we are getting warmer. Sites of recent flooding will soon become uninhabitable is my prediction.

    • Did you read the same article I did? It’s the Ontario Liberals who have put in Cap & Trade and it’s the Conservatives who want a carbon tax-not the other way around!!
      However, if you look at gasoline taxes in most European countries where small fuel efficient cars are in the majority, those taxes are about $1/litre higher than ours in Canada. That $1/litre equates to a carbon tax of over $450/tonne!! So don’t expect any climate salvation here even when the carbon tax gets to $50/tonne. It’s just a money grab.

  9. Wynne continues with her normal B.S. Hopefully Brown doesn’t screw things up like Tory and Hudak did- Ontario cannot afford another year of Wynne/Liberal wasting of our tax dollars and ruing the province.

  10. Professors in Disney World. At least the political bias reads through in the mad up data i.e. fossil fuels, according to the models and their imagined inputs, will cost much more in Alberta than elsewhere. Models based no imaginary data give imaginary results but at least one can imagine any numbers they want to support the political point they’re trying to make. One must also question what comes out of a garage shop operation. In any case, the mode of carbon pricing is a marginal issue which the conservatives try to make out is the only issue as they are devoid of any real environmental policy. Carbon pricing of any kind will not provide anything close to the required environmental benefit and will not reduce GHG enough. Of course conservatives favor a tax as they can control the cash flow – likely into more meals and travel – while credit trading causes cash to flow from GHG producers to renewable alternatives. The conservatives, without apology, fractured the electrical system in Ontario, leaving behind a quagmire of public-private operations: now Ontarians pay twice what they should while the good folks in Ohio receive mass quantities of nuclear power at bargain prices. The article doesn’t mention that further increasing the use of natural gas and coal is part of the conservative agenda manufactured in Alberta.

    • You are wrong. Even Saskatchewan is backing off its hard-line stand against the carbon tax and is at least changing its English on the subject but it remains a form of cap and trade as is every conservative on the planet including Trump.

      Most of the world is headed for carbon tax the exception being conservative hold outs.

      • Patrick Brown-a Conservative-is proposing a carbon tax to replace Wynne’s- a socialist liberal- cap and trade. If he were a true Conservative, however, he would recognize that we’ve had five huge warming and cooling periods (the ice ages) come and go before man burned the first sticks, and that the climate is changing as it always has and always will but that man has very limited impact on what happens both when it cools and when it warms.

    • All Wynne’s cap and trade does is send money to California where there are credits to trade our money for. It’s the dumbest scheme of all!!

  11. Disappointing comments, whatever happened to informed civility?
    First, the trading mechanism (cap & trade) was the initial plan of the Kyoto Protocol, it is the chief instrument in Europe. In the Paris Accord carbon tax was implemented under Article 5. The initial trading mechanism goes back to reducing acid rain in the 1992 US clean air act.

    Trying to cost out the difference between C tax vs CnT is almost impossible because technology is changing so rapidly. In Europe an initial speculative market in emission trading led to a collapse from which the EU ETS (trading system) has yet to recover from. However despite the low price of emission permits the EU met its GHG reductions 4 yrs ahead of schedule and at very low economic cost. Leading policy makers to conclude that the price signal might be more important than a high price.
    Still now the low hanging fruit has been picked higher permit prices will most likely be need to achieve future goals. Which is why a number of European countries have adopted side by side emission reductions strategies. This is where the carbon tax manages the price floor, i.e. the minimum price, but the market manages the price ceiling. This avoids all the complications of backstopping the supply of emission permits which is currently under discussion in policy halls. As Canada furthers its means of pricing carbon they should look to the lessons learned from EU-ETS and look toward what PhD students are doing….. this is where the innovation is, not with seasoned professors who are defending their intellectual turf.