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Why Canada’s carbon pricing plan should give money directly to Canadians

The federal government’s discussion paper on the so-called ‘backstop’ remains unclear on what it will do with carbon revenues


 
Environment Minister Catherine McKenna concludes a media availability as she makes her way to the House of Commons on Parliament Hill in Ottawa, Thursday, May 18, 2017. (Fred Chartrand/CP)

Environment Minister Catherine McKenna concludes a media availability as she makes her way to the House of Commons on Parliament Hill in Ottawa, Thursday, May 18, 2017. (Fred Chartrand/CP)

On Thursday, Catherine McKenna, Canada’s environment minister, took the next step towards a national carbon pricing plan for Canada. The federal government tabled a discussion paper on the so-called federal “backstop”—the default carbon pricing rules that will apply in those provinces that choose not to put in place their own system.

Under the federal plan, any province or territory that brings in its own carbon price—whether it’s a carbon tax like British Columbia and Alberta, or cap and trade like Quebec and Ontario—will be exempted from the federal backstop if it meets certain conditions. Provincial systems must cover most fossil-fuel emissions and have a price level equal to the backstop price or, under cap and trade, must result in equivalent emissions reductions as a price would have achieved. Provinces that do not bring in their own system will fall under the federal backstop rules. Under the backstop, a direct tax or levy will be applied to all fossil fuel emissions, starting at $10 in 2018 and rising to $50 by 2022. These measures assure that all provinces will have systems with a roughly similar price, emissions coverage, and roughly equivalent effort at reducing emissions.

While these parts of the federal plan have been clear since last fall, today’s discussion paper adds two more important details. Two of the biggest criticisms of carbon pricing in Canada have been that it could hurt the competitiveness of Canadian industries, and that it could impose unaffordable costs on Canadian households. The federal plan will go a long way to resolving the first problem: to deal with competitiveness, the federal plan, like Alberta’s system, will include output based allocations to ease the impact on large industrial emitters. Plants producing more than 50,000 tonnes of carbon dioxide will only be charged the carbon price to the extent to which their emissions are higher than the emissions of best in class facilities in their sector. This will prevent companies in internationally competitive fields like oil and gas, cement, steel, and fertilizer from being fully impacted by the carbon price, and give them a strong incentive to improve their performance to meet or beat best-in-class standards.

But the plan also opens the door to solving the second. The federal government had already said that it would not keep carbon revenues from the federal backstop, but would return all revenues to their province or territory of origin. However, this still left open the possibility that provinces could simply spend the money on whatever they wanted—which could make the federal carbon price a form of tax increase. In recent days, however, federal sources have hinted that rather than send the money to provinces, it could send revenues raised directly to citizens within those provinces. The discussion paper is silent on this point, merely saying that the government is “open to feedback,” although the accompanying press release suggests that they are “evaluating how best to return the revenues, for example, by giving it back to individuals and businesses in the province.”

Well, let me offer this feedback: 100 per cent of the revenues should be given back to taxpayers.

The simplest and fairest approach is to simply return all carbon revenues raised back to the citizens of the jurisdiction it came from. This could be done by an equal per capita rebate or divided (with perhaps a half share for dependent children). While there are several options for returning revenues to individuals and companies, it may be hard to design specific federal tax cuts province by province since provinces will vary in the amount of carbon tax collected per capita. But it would be relatively simple to calculate the amount of revenues collected in each backstop province and divide it up equally. The federal government would then simply send each individual or household a cheque for that amount (perhaps quarterly, as with the current GST credit). Making the rebate equal per capita would ensure fairness, as it would represent a greater share of income to a lower income household than to an upper income one. And it would be simple, transparent, and easily understandable.

Take Saskatchewan, the province that has most strongly opposed carbon pricing, and thus the most likely to face the federal backstop legislation instead of introducing their own plan. If Saskatchewan’s transportation and electricity emissions were fully priced, and industrial emissions received about two-thirds of any carbon price back as output based allocations, a $50 per tonne federal carbon price in Saskatchewan would generate over $2 billion in annual revenues. If this was simply divided per capita, every adult in Saskatchewan would receive more than $2,000 per year, and more than $1,000 per child, or more than $5,000 for the average household.

Of course, as businesses and consumers adapt to the carbon price, they will also reduce their emissions, which will reduce both the carbon price paid and the amount of rebates to households. But at roughly $2,000 per person, direct rebates would more than offset any increased costs for gasoline or electricity that Saskatchewan’s residents would face. The federal carbon price would be fully revenue-neutral, putting every dollar raised back into the pockets of consumers and households. Industry would not be severely affected thanks to output-based allocations, and average households would be ahead of the game.

Now if Brad Wall has other ideas for how to spend carbon revenues—such as a technology fund or paying for carbon capture and storage—or if he wants to make his own modifications to the system, such as exempting farm diesel fuel as some provinces have done, then he is free to bring in his own system any time he likes. But if he does not bring in a made-in-Saskatchewan plan, the federal backstop plan can be designed in such a way that it does not hurt Saskatchewan businesses or taxpayers, but still makes sure that all carbon emitters in Canada are taxed, regardless of their province of origin.

The federal government is on the right track with its new backstop proposal, which will bring much needed consistency to carbon pricing across Canada. And with good design, Ottawa can ensure that a strong national carbon price in Canada can reduce emissions while not harming the competitiveness of our industry, or hurting consumers and households.

Mark Cameron is the executive director of Canadians for Clean Prosperity.


 

Why Canada’s carbon pricing plan should give money directly to Canadians

  1. This seems to be missing the point that carbon pricing is supposed to discourage the use of fossil fuels. Like most articles of this sort, it takes no notice of the difference between carbon tax, which only has the effect of discouraging the use of fossil fuels, and carbon credits, which does that and encourages the use of alternative energy; in effect, double the bang for the buck. In either case, reducing fossil fuel use has a taxpayer bonus in that reduced consumption of fossil fuels reduces taxpayer subsidies to fossil fuel companies; for example, a 15% reduction would result in a $3.6B benefit to taxpayers.
    The article avoids mentioning Brad Wall’s dirty little secret i.e. his CCS project already puts a price in excess of $100/tonne on CO2 and doubles the wholesale price of electricity in Saskatchewan; he’s already put taxpayers behind with his CO2 reduction effort; in the long run, it will cost ratepayers another $19B to apply CCS to their entire fleet of coal stations.
    In any case, turning the GHG reduction problem into a mere issue of carbon pricing is a neat deflection of the issue. It’s clear that conservation is the lowest cost means of reducing CO2 emissions which actually has a negative cost. Efficiency is the next lowest in cost: even Mr Wall could have chosen to reduced CO2 emissions by 33% by replacing his aging coal plants with state of the art ones; a marginal effect of carbon pricing is to encourage investment in efficiency. Currently, wind power is cheaper than any fossil fuel generation and solar is just nudging past natural gas; a marginal effect of carbon credits (as opposed to taxes) is to further lower the cost of these and other renewable sources.
    In any case, such articles try to make it appear more difficult than it is: Canada is in the top 5 of per capita energy consumption and virtually twice that of some G20 countries so conservation and efficiency alone (lowest cost options) should be sufficient for the next few decades.

    • The entire carbon tax scam is Big Oil propaganda designed to make us think we are doing something we are doing something about AGW when in actuality nothing is happening. The carbon tax is just an excuse to raise taxes hopefully all of it used to build transit, or nuke power, the only real tools we have to reduce GHG’s. Naturally Big Oil is not a fan of the above and buys lotsa politicians and media time to promote its carbon tax and wind/solar/with gas backup shticks.

      Returning the cash to taxpayer instead of investing it will cancel the one benefit of the tax.

      Anybody who has worked in business finance and planning knows, what the Trudeau government doesn’t, it takes a enormously high rate of return on investment – in the order of 25% – before a business or individual can overcome the various roadblocks to proposing a capital investment to reduce operating costs.

      A few pennies a litre of savings on petroleum, or per Gj of natural gas, is not going to promote investment in conservation, new vehicles or HVAC tech – reducing the use of the main GHG culprits.

      As for the usual scientific illiteracy, promoted by Big Oil, minimizing the costs of wind and solar, Big Oil loves wind/solar power because it gets to sell lots of gas to the peaker plants required to back up the worthless renewables to 100% nameplate, lots more gas than it would sell to the combined cycle plants installed if no wind/solar was involved.

      I would challenge the green science illiterate to come up with a cost analysis sans subsidy, capital and operating costs included of a single large wind/solar install that is even close on LCOE to a gas plant. Add in the fact that the gas plant has to be built anyway to cover the times the sun is down, and wind ain’t a blowing and other grid investments and we have the Ontario Auditor General reporting that wind/solar adds an additional 35 cents a kwh to your power bill.

      Big Oil of course has lots of cash to pay 24/7 online teams of commenters going under various handles to promote the scam.

      Fortunately China, immune to Big Oil influence, is building lotsa nuke power with its best in the world penny a kwh, factory produced, coal plant replacing, HTGR capable of producing 25 cent a liter synfuels, coming into service next year. With the HTGR success, China’s and the world’s coal to nuke conversion will rapidly accelerate.

      Sadly, once the Big Oil promoted wind/solar government subsidies collapse, the not so green after all investor will be losing his shirt.

      • Sethayal-I’ve never read such crap in my life. I was in the oil industry for 38 years and big oil does not support wind/solar because they view it is a waste of tax payer money-a lot of which comes from them. In the developed world, after accounting for subsidies, the Canadian oil industry is amongst the highest taxed in the world!! So, relative to your nonsense on the saved subsidies if oil/gas consumption drops, the government loses much more in taxes than it would have paid out in subsidies.

    • Come up with some to prove what you are saying. This is more assumption than rational supportable fact.

      • Look up the world price of oil. Research to find out how much it costs to process a barrel of oil into usable ‘oil products’, convert the cost to a litre of gas. Consider the cost of transporting the oil to Texas and the gas back from Texas. Factor in provincial and federal taxes. Then go look at what you’re paying for a litre of oil at the pump. The difference is the bullsh*t factor.

        And you’re still getting a ‘bargain’ compared to Europeans.

        • If you remove gasoline taxes around the world for all of the developed countries, the price of gasoline ex tax is within 2 cents/litre. In the U.S. they average 8 cents/litre while in Ontario, after Wynne’s cap and trade added 4 cents/litre, they total 44 cents/litre. In Europe, they differ by country but are well over $1/litre.

  2. Carbon pricing is punishment. It does nothing to address the real problem -> dependence on fossil fuel. Why not provide incentives to develop low cost alternate energy?
    BTW … where does the carbon pricing money go?

    • They are trying to determine whether to give the money back to the Province or to the citizens themselves.

  3. It is now being called a “price on pollution” when it is, in fact, a carbon tax. This is disingenuous and the Liberals are trying to pull the wool over our eyes by eliminating the terms “carbon” and “tax”. They must think we are all really dumb.

  4. I thought this was going to solve the warming problem. This is the supreme political answer it will do nothing to solve the problem it is designed to solve and it will cost a fortune to implement. What do you believe the loss in value on every dollar the government collects against the value of benefit for this item.

  5. I’m screwed! I’m the one who uses 400 percent more electricity than anybody else on the block, according to my electricity bill. They’ll be ‘cap and trading’ me into sitting in the dark, in a tent in the yard, with a candle and blankets – just to pay the transmission fees and debt reduction charges on the power grid I would have used had I turned something on.

    I can seen a big profit, and a bumper dividend, for those wise investors at the banks who hold utilities stocks.

  6. Give the carbon pricing fund back to the people who are paying for it? How innovative!

    It sure as hell beats buying a boodle of every expensive ironmongery to use in ‘bombarding’ the benighted people who ‘sit on’ all that oil wealth – and deserve not to.

  7. Every planet is currently undergoing some warming and, as it is here on Earth, it’s got everything to do with increased solar activity and nothing to do with man made CO2. I don’t think there are a bunch of SUV’s running around Mars!!
    So, while man made global warming is one of the biggest shams of all time, IF you believe it, the only way you change consumptive behavior to have less consumed is to raise the price until it hurts ( all those small cars all over Europe are because gasoline and diesel taxes are about 4 times higher than in Canada.) You don’t change any behavior if the consumer gets the money back!!

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