Terence Corcoran: The carbon-tax system isn’t a tax grab. It’s an economic bulldozer

The proposed Greenhouse Gas Pollution Pricing Act weighs in at 236 bilingual pages that are unreadable in either official language.

We all know the great eco-fiscal rationale for Canada’s national carbon tax. By putting a tax on carbon emissions, Ottawa is said to be deploying the most effective driver of human behaviour known to economic science: the price system. High price equals lower demand for gasoline and other fossil fuels, and therefore lower carbon emissions that cause global warming. As the self-appointed Ottawa-based NGO known as the EcoFiscal Commission says, imposing a carbon price/tax is way more practical, simple and cost-effective than, say, heavy-handed, complicated and cost-ineffective regulation.

It is with these grand economic concepts in mind that we turn now to the federal government’s recently released Greenhouse Gas Pollution Pricing Act (GGPPA), a core piece of legislation that would mandate a national carbon price along the lines advocated by ecofiscalists.

The act provides another opportunity to test the carbon-tax theory. How does this neat and effective market mechanism to stop floods and extreme weather compare with the reality of Canada’s emerging carbon-reduction systems, taxes, regimes and regulatory apparatuses?

Environment Minister Catherine McKenna says the carbon tax “is not a tax grab.” Correct. The carbon-tax system, and all its accompanying regulatory paraphernalia, is not a mere tax grab, it is a giant multibillion-dollar tax bulldozer rolling through the economy accompanied by an entire fleet of heavy regulatory equipment.

The proposed GGPPA released last week weighs in at 236 bilingual pages that are unreadable in either official language. The accompanying “regulatory framework,” another 124 pages in the incomprehensible English version alone, is a jargon-filled nightmare.

The framework begins with definitions, such as this on page 14: “The definition ‘covered facility’ means a facility or property that meets either of two conditions. First, under paragraph (a) of the definition, the facility or property is a covered facility if it is a covered facility within the meaning of section 168 that is registered by the Minister of the Environment under section 170 other than a facility or property that is prescribed by regulations, a facility or property that is part of a class of facilities or properties prescribed by regulations or a facility or property that meets conditions prescribed by regulations.”

There follows another 200 pages of such material. Usefully, though, the proposed GGPPA does list actual values for the “fuel charge” that will rise to $50 per tonne of carbon emission by 2022. The tax is not called a tax anywhere in the documents. The fuel charge will be applied to 22 fossil fuel products — aviation gasoline, butane, ethane, gas liquids, gasoline, heavy fuel oil, kerosene, naphtha, coal, etc. — raising the price of all products. By 2022, the carbon tax on gasoline will hit 11 cents a litre.

If that were all there is to the carbon-pricing regime, we could all go on with our lives. Alas, while carbon charges will generate more than $6 billion in revenue for the provinces this year, the total collected will soar in years to come. When the tax hits $50 a tonne by 2022, revenues are likely to exceed $30 billion.

Unfortunately, at that price, the tax will still likely have failed to meet Canada’s target of cutting carbon emissions 30 per cent by 2030. Ecofiscalists say we need a $200-a-tonne carbon tax, which would bring tax revenues to more than $100 billion a year. But even at $200, the tax alone is not enough, contrary to the claims of proponents of a carbon tax.

In 2015, the EcoFiscal Commission portrayed carbon-pricing regimes as a way to save the economy from the burden of regulation that is costly to develop and impose, suffers from information problems and technological change. Subsidies are also undesirable and likely to be ineffective.

Well, guess what. Canada is now set to get a carbon-pricing regime — plus all those vast regulatory structures, subsidies and other interventionist systems that the pricing regime was supposed to render unnecessary.

The federal framework for the carbon-pricing system mentioned above is in large part aimed at providing major carbon emitters with various options if they face competitive pressures, especially from imports. The framework incorporates all the bad elements of industry regulation: massive data gathering, strange calculations to determine which companies are entitled to special treatment, import rules, and more. For regulatory masochists, the full doc is here.

And there’s lots more still to come, flowing out of the emerging federal Output-based Pricing System. And then there’s the “clean fuel standard regulatory framework,” which aims to “establish lifecycle carbon intensity requirements separately for liquid, gaseous and solid fuels that are used in transportation, industry and buildings.”

At the same time, provincial governments have major subsidy programs that will in years to come send billions to industry and consumers in attempts to manipulate their behaviour. More subsidies — for electric vehicles, public transit and cleantech innovation — will be showered upon green rent seekers, as governments thrash about in the economy with greater intensity than they have in the past.

And the ecofiscalist NGOs? Where are they who once claimed carbon pricing would do most of the carbon-reduction work? They are now back rehabilitating and reselling regulation. The Laurier Centre for Economic Research just released a new study claiming a whole new insight that, while a carbon tax is best, “the optimal combination of regulatory instruments would also include a low-carbon fuel standard and a zero-emission vehicle mandate.”

The carbon-tax theory is shaping up to be the economic policy sham it has always been.

Source: Terence Corcoran; Financial Post;