Among the “real change now” promises of the Liberals is to make a substantial contribution to reduction of Canadian greenhouse gases, to break with the Harper tradition of climate change scepticism and the Chrétien-Martin era of climate change symbolism without substance. Given that the UN is convening the next major conference on climate change at the end of November, Trudeau’s government cannot ignore this file.
To date (writing in late October), Trudeau is relying on the fragile interprovincial dynamic that emerged over the last year. The provinces have agreed to let a hundred flowers bloom: some will undertake explicit carbon taxing; some will join interstate/interprovincial markets in emissions trading; some will enact tougher sectoral regulations; some will subsidize green innovations. Trudeau has invited most of the Canadian political elite to join the Canadian delegation in Paris. Invitations have been extended to Tom Mulcair, Elizabeth May and interim Tory leader Rona Ambrose, to the premiers and to leaders of national environmental groups.
Relative to Harper’s legacy, this is an improvement. And it is natural, in the postelection honeymoon phase, to hope that love will triumph over self-interest. Maybe the fact that summer 2015 was the hottest on record will help. It generated unprecedented forest fires across northern and western Canada – here in Vancouver smoke from the fires intermittently interfered with the pleasure of a Starbucks latte on a thousand outdoor patios. However, being a practitioner of the “dismal science” (economics), my instinct is that love will not triumph; “real change” requires “real change” in financial incentives.
Immodestly, I invite readers to dig up my editorial in the last issue of Inroads on the Tories’ two “big ideas.”1 The first of these ideas was to turn Canada into a low-tax country. They succeeded. In terms of taxing effort, Canada fell over the last decade from its rank as a typical OECD country to its present rank at the bottom quartile (three quarters of OECD countries tax more aggressively). For the time being, Canadians still subscribe to this first idea. The evidence? During the election campaign, the Liberals championed a personal tax increase for the “1 per cent” but accompanied it with an offsetting cut for the “middle class.” To offset its tax-and-spend reputation, the NDP promised balanced budgets subject to a modest corporate tax increase. It is an understatement to conclude that these were timorous responses to an honest discussion of tax increases to pay for new programs or for the inevitable health care cost increases to provide for the aging boomer generation.
The Tories’ second big idea was that Canada become the Saudi Arabia of North America through aggressive development of its vast hydrocarbon resources – greenhouse gas emissions be damned. That the Tories failed to realize this second goal is due not to Canadians’ collective conversion to sustainable development somewhere on the road to the UN gathering in Paris. They failed because the Saudis decided in 2014 to maintain their world market share in oil exports. They did not restrict output to maintain oil prices in the $100-a-barrel range. At $50 a barrel, most of Canada’s ambitious tar sands, liquefied natural gas and international pipeline projects were not financially viable. As corporate executives cancelled planned investments and laid off workers, Canada entered into a mild recession in 2015. As an aside, had the Saudis not cut world oil prices in half, would Stephen Harper still be prime minister?
It is a measure of the Tories’ success in realizing this second goal that the Liberals and NDP were ambiguous in discussing future oil and gas developments, and their proposals for new climate change policy are long on process, short on substance.
From the “dismal science” perspective of climate change modelling, a financial incentive of sufficient magnitude to reduce Canadian emissions substantially – say, 80 per cent reduction by 2050 relative to “business as usual” projections – will require a carbon price that rapidly ramps up to $200 or $300 per tonne of CO2 equivalent. That is a rate seven to ten times higher than the present British Columbia carbon tax. If this carbon price increase came about via a carbon tax, it would coincidentally raise Canada’s taxing effort by two percentage points of GDP, would raise about $40 billion annually and would restore Canada to the middle range of OECD countries in terms of taxing effort.
During the election campaign, not even Elizabeth May talked about a $40 billion annual tax increase. Maybe love will prevail …
1 “The Tories’ ‘Big Idea,’” Inroads, Summer/Fall 2015, pp. 6–9.