Lessons in the Canada Carbon Tax saga

In recent years, former central banker Mark Carney has been one of the most important defenders of climate action in the world. However, one of the first things he did after taking over as a Canadian Prime Minister was to abandon the country's historic tax on consumer carbon emissions.

What does the disappearance of the levy tell us about the challenge of obtaining modern savings on a low carbon content? Read the rest for my post-mortem. . .

Carbon price

Why has the consumer carbon tax in Canada failed

It was presented as the “greatest public declaration of economists in history”. More than 3,600 economists – including four former federal reserve chairs and 28 Nobel Prize winners – launched their weight behind a 2019 call So that the United States introduces a national carbon taxWith all income paid to citizens.

It was, said economic lights, “the most profitable lever to reduce carbon emissions on a scale and speed that are necessary”. Above all, the full discount of product to families – most of which would benefit from a net financial advantage – would guarantee the “political viability” of the regime.

The proposal of the American economists could have seemed revolutionary, but it was fundamentally almost identical to a program which had been legislated the previous year in Canada, and which entered into force in April 2019. The government of Justin Trudeau was the first world to introduce a national tax on carbon on the consumption of fossil fuels with the product returned to the country, through the bias of quarterly.

Last month, the Canadian carbon delivery, however, was the last. New Prime Minister Mark Carney abandoned carbon taxes oriented to consumers during a harshly disputed campaign before his victory in last week's general elections.

This is a development that gives to think about the many global economists who have long considered a system of “carbon and dividends” system, neutral as an elegant and politically achievable approach to climate action – to move economic incentives for consumers, then let market forces do work.

So what lessons can be learned from the Canadian carbon tax saga? Did these economists bark the bad tree? Or could it still prove a powerful way to fight against global emissions?

A blatant problem was the government's inability to attract people's attention to the discounts they obtained. For most households, they prevail over the carbon taxes they have paid, because a richer minority of Canadians represents a disproportionate part of fuel consumption (and therefore the tax burden of carbon).

At the beginning, the discounts simply appeared as discounts in the annual tax declarations of individuals. Later, they arrived as payments to their bank accounts – but often without labels clearly indicating what they were, until the government adopted a law last June, forcing banks to change their systems to allow this. Even then, awareness of discounts was limited by the fact that they were paid to a single adult in each household.

As a Canadian economist Aaron Cosbey Put it recently: “The lesson is that if you will put a tax on the carbon to people, send them a paper check by post, with red words at the top that say:” It is your carbon tax delivery. Thank you so much. “”

On the other hand, the cost of the tax system appeared in the most remarkable places: the imposing price is displayed at each service station on the roadside. “People were very aware of the cost and much less aware of dividends,” said Kathryn Harrison, professor of political science at the University of British Columbia.

The tax was introduced in 2019 at a level of $ 20 CA (US $ 14.48) per tonne of carbon dioxide, and increased by $ 10 Co or $ 15 CA each year. Last year, he reached $ 80 CA per ton. Even then, that only added 10% to the cost of road fuel. The discounts also increased, reaching a national average of $ 1,160 CA last year for a family of four people.

But as consumer inflation has increased in recent years, opposition politicians have managed to channel frustration towards carbon tax. Pierre Poilievre put his “AX the Tax” campaign at the center of his public messages after having become leader of the Conservative Party in 2022.

Hairy warnings with regard to the detrimental impact of Canadian household tax “just resonated very hard, even if the data said the opposite,” said Dave Sawyer, principal economist at the Canadian Climate Institute.

This meant that even Carney – who had made climate action his main objective since who left the Bank of England in 2020 – saw no option to lower the tax. “It became too divisor,” he said in January during his race for the leadership of the Liberal Party.

Carney stressed that he planned to replace the consumer carbon tax with new “incentives for greener choices”. Canada is expected to stick to its policy to prohibit new fossil fuel cars from 2035. And the country's industrial carbon pricing system, which applies to a wide range of heavy sectors, should stay. The industrial regime was already likely to stimulate emissions three times higher than consumers tax, according to the Canadian Climate Institute.

At a global level, carbon pricing – whether through taxes or emission trading systems – is slowly spreading. A World Bank report Last year revealed that 24% of global emissions were covered by such regimes, compared to 7% per year before. The EU introduction of a carbon border rate (a decision that Carney's Canada should also continue) is likely to add to the momentum, while countries are trying to avoid the levy by introducing their own carbon prices.

Most of these programs focus on industrial emissions rather than consumers, and almost none was continuing income from income to taxpayers. (Switzerland is closest, using most products to subsidize health insurance premiums.)

But recent research invited whether these winning economists in Nobel were right to assume that making neutral carbon tax income would make them more politically viable.

A new precious study Led by OECD researchers interviewed 40,000 people in 20 countries on their opinions on various climatic policies. In rich and developing countries, respondents were much more in -depth on the idea of ​​carbon taxes if the product was used to finance environmental infrastructure, rather than cash transfers.

“Most people around the world are motivated to fight climate change, and they agree to pay something to do so – but they want this money to enter a tangible result,” said Nicholas Rivers, public and international business teacher at the University of Ottawa. “And that's not what happened here. People could never attach this additional gas money that they paid for a green result. ”

It turns out that humans can be difficult to predict – even for the best economists.

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