To tax, or not to tax – carbon?

Commentary by Michelle Robichaud, President

To tax, or not to tax carbon? That is not the question. A debate on carbon taxes is the talk in communities across Canada today, as it has been for several years.  Polarization on the issue has escalated recently since the federal government offered a short-term exemption for home heating oil in Atlantic Canada.

The Atlantica Centre for Energy has long suggested that federal climate change policies would place heavy burden on the Atlantic Region, including the federal carbon pricing backstop system, or ‘carbon tax.’ The disproportionate burden is also the case for the phase out of coal-fired electricity generation by 2030, the Clean Fuel Regulations and the incoming the Clean Electricity Regulations.

The current carbon tax system may not be the fairest option for every region in Canada.

The Centre has called on governments to consider regional economic, social and climate differences in developing national policies. Rural Atlantic Canadians do not have alternatives such as natural gas to heat their homes like much of the rest of Canada, and most home heating in the region is already electrified. There has been a five-fold increase over 20 years in the cost for those heating with oil, significantly impacting Prince Edward Island and Nova Scotia in particular, which includes 40 per cent and 32 per cent of households respectively, in 2021.

It’s not just about switching from heating oil to a heat pump, many of the homes need significant upgrades in order to make the investment worthwhile. There are also valid concerns about electricity reliability in some more remote communities, which makes the case for back-up or non-electrified heating sources.

Considering more than just home energy use, transportation is a significant contributor to GHG emissions. Atlantic Canada is the most rural region in Canada and relies heavily on personal vehicles and heavy transportation to get products to the eastern most provinces.

Residents living outside of urban centres do not have access to public transit the same as those living in Toronto or Calgary. Alternative transportation options are not readily available in rural communities to reducing their reliance on combustion engine vehicles.

Image Source: Rural Share of Census Population Count, 2021

It’s more than just money, even though that seems like the crux of the issue.

Ignoring the impacts of carbon intensive energy on our climate isn’t an option either. Residents and businesses should be motivated to reduce their emissions, but only to a point where it won’t cause undue financial hardship or advantage one region over another based on reasons outside their control.

All Canadians should be prepared to pay more, over time, and those costs should be clear and predictable. Emission reduction and climate change are problems shared by all Canadians, the costs of reaching these goals should be as well.

In order to decarbonize, industry must also do their part. However, they need policy certainty to plan for and make the investments needed while still remaining competitive.

Carbon tax was meant to be a predictable additional cost to incentivize behaviour change. However, no one anticipated a global pandemic or a war severely impacting the cost of goods and causing significant inflationary pressures on households and businesses alike.

Federal policies may be too large to capture regional differences.

The next policy to come into effect is the Clean Electricity Regulations, which will be finalized in 2024. This policy will increase the cost of electricity, for some provinces more than others as the phase out of coal-fired electricity generation by 2030 in Nova Scotia and New Brunswick will be expensive no matter what replacement options are available.

Federal and provincial governments need public support to implement emission reduction policies. Today, it feels like support is waning, to the point where political leaders are contemplating its removal entirely. This is not likely the best solution either. A perpetual pendulum of unsuccessful policies will lead to little progress on the climate change agenda.

The Atlantica Centre for Energy recommends political leaders stop using hyperbole when discussing national energy and climate policies; this is true for opinions on both sides of arguments. There must be a fact-based middle ground where consensus can be found to move forward more balanced ideas that not only help with reducing GHG emissions but are also affordable for all Canadians.

Elected leaders of all political stripes must compromise when debating national policies; they must ensure policies are not overly prescriptive to burden one region more than another, unless additional support is provided.

Agreement has been achieved on aiming for a net-zero society by 2050, why not let provinces, utilities and businesses decide on how they reach that goal? The federal government’s role can be to incentivize effort, as opposed to penalize, perhaps even scaled for early movers or carbon reduction impact.

It is time to think outside the box. Taxing carbon is therefore an irrelevant question. Instead, ask: Canada has the overarching goal making a meaningful contribution to climate change, are we willing to compromise to ensure we achieve it?