Canadian Legislative Issues

With a carbon tax price floor to be the law of the land beginning in 2018 – and with many provinces rushing to catch up to it – there should be some certainty regarding carbon pricing in Canada for the foreseeable future, though with differing approaches from one province to the next.

However, by the government’s own admission, the carbon tax as planned will not come near meeting our greenhouse gas emissions reduction obligations under the Paris Accord. At its currently-forecasted maximum of $50 per tonne in 2022, it is estimated that the carbon tax may account for less than a quarter of the GHG emission reductions we are obligated to make under the Paris Accord. What will make up the other 75 percent? Industry-specific regulations. The carbon tax will impose costs to producers and consumers as it is ramped up, but potentially nothing like the costs that could accrue under burdensome regulations.

Most economists would agree that the most efficient means of reducing the consumption of carbon is to increase its price: hence, a carbon tax. Taxes, being politically unpopular, are hard for governments to implement. It’s much easier politically to impost huge costs on firms via regulation than it is to impose a tax of known quantity on everyone, even though such regulations are much more costly and less effective at the stated end goal: a reduced carbon footprint.

In transport, regulations take many forms. Fuel economy standards are already costing manufacturers – and therefore consumers – billions of dollars every year, as the billions spent in R&D and technology upgrades by OEMs bury themselves in sticker prices paid by consumers. Transport in general has been singled out by governments as one of the largest emitters of GHGs, so it is easy to predict further regulations in the near future that will impose similarly heavy costs on the sector.

No one pretends our environmental objectives can be met without cost. But in such a fundamental policy debate, shouldn’t a more rigorous cost-benefit analysis be applied to industry-specific regulations? To the extent that it is not, we will all be made poorer, and we will have missed a chance to reduce our carbon consumption in the most efficient and effective manner.