Beginning this month, Ontario’s new cap-and-trade carbon tax system comes into effect. The tax raises the price of carbon by about $18 per ton, with the idea of making the economic price of carbon more accurately reflect the social costs it inflicts.
The introduction of the tax has been met with much debate. Ontario Progressive Conservative Leader Patrick Brown tweeted on Sunday that “Wynne’s cap and trade will achieve no meaningful emission reductions in Ontario but at an enormous cost. This is a huge cash grab!”
While carbon taxes often elicit such reactions, perhaps the most effective way to gain insight into the new carbon tax is to look at how similar efforts by other provinces have fared.
A look at British Columbia’s carbon tax, which was put in place nine years ago by the BC Liberal Party, demonstrates that the tax works essentially as economists predict it will. It reduces greenhouse gas emissions and raises tax revenue, while having no detrimental effect on the economy.
BC has continued to see a quickly growing economy relative to the other provinces, even under a much more aggressive tax scheme which prices carbon at $30 per ton.
“It performed better on all fronts than I think any of us expected,” said Mary Polak, BC’s environment minister. “To the extent that the people who modeled it predicted this, I’m not sure that those of us on the policy end really believed it.”
A study by economists at Duke University and the University of Ottawa reports the tax has reduced emissions by five to 15 per cent while having “negligible effects on aggregate economic performance.”
While gas prices did indeed rise with the tax, people learned to cope, driving less, heating and cooling their homes more mindfully, and otherwise adopting more efficient measures.
While initially citizens were somewhat opposed to the tax, with 47 per cent of those in BC against the initiative in 2009, they have become more appreciative, with only 32 per cent against the tax in 2015.
However the BC government took measures to ensure every dollar gained from the tax would be reintroduced to families and businesses through a series of tax breaks.
That “is the thing that saved us,” said Carole Taylor, the provincial minister of finance at the time of the carbon tax’s introduction. “If I had said, ‘Give us the carbon tax and trust us,’ I knew it would have been a failure.”
Ontario is not the only province beginning 2017 with a controversial carbon tax. Alberta’s New Democratic Party government also introduced a tax of $20 per ton on Carbon.
Unsurprisingly, it was met with the same reactive response seen in Ontario. Federal Conservative leadership contender Kevin O’Leary wrote an open letter to Alberta Premier Rachel Notley, where he says, “You will officially be guiding Alberta into an economic blizzard with the implementation of the carbon tax. A disaster Alberta won’t be able to dig itself out of.”
O’Leary appears to believe the carbon tax will push Alberta past the brink of no return, forever dooming it.
However, equally unsurprisingly is the taxes initial success. Since the introduction earlier this month, gasoline has not risen in price but has actually become much cheaper.
The Alberta government plans on using the tax revenue to transfer wealth to the less fortunate.
Prime Minister Justin Trudeau referred to Premier Notley’s leadership on the tax as “instrumental” in his decision to approve two new Alberta pipelines.