Global carbon taxes are ineffective because their main purpose is to raise government revenues, not lower industrial greenhouse gas emissions linked to human-induced climate change, according to a new study by the Fraser Institute.
The report by the fiscally-conservative think tank examined carbon taxes in 14 high-income countries that are members of the Organization for Economic Co-operation and Development (OECD), including Canada.
“Overall, no high-income OECD country with a carbon tax has implemented it based on sound design,” said Elmira Aliakbari, co-author of the study, Carbon Pricing in High-Income OECD Countries.
“Poorly-designed carbon taxes, like those in all high-income countries around the world, do not deliver on the promise of cost-effective emissions reductions. Instead (they) cause serious and harmful economic effects that increase costs, scare away investment and deter entrepreneurship.”
The reason, the study says, is that carbon taxes only work if they lower income and business taxes by an equivalent amount, replace rather than add to existing emission regulations and end alternative energy subsidies.
By contrast, the study says: “On average, 74% of carbon tax revenues in high-income OECD countries go directly into general revenues for government with no specific use, 12% are earmarked for environmental spending and only 14% are returned to taxpayers.”
Prime Minister Justin Trudeau’s carbon tax is a relative rarity in that it returns 90% of the money it raises to households in the four provinces to which it applies — Ontario, Alberta, Saskatchewan and Manitoba — as income tax rebates.
The remaining 10% of carbon tax revenues goes to small and medium-sized businesses — who have complained it comes nowhere near to covering their increased costs, due to carbon taxation — as well as to schools, hospitals, universities, municipalities, Indigenous communities and non-government organizations.
(The other provinces have federally-approved climate pricing plans.)
The problem with Trudeau’s carbon tax (now at $30 per tonne of emissions rising to $50 per tonne in 2022) is that he didn’t reduce other taxes by an equivalent amount.
He simply layered it on top of other government regulations, alternative energy subsidies and a looming Clean Fuel Standard, which will further increase the cost of living to Canadians.
British Columbia’s carbon tax is another example of a carbon pricing scheme that hasn’t worked in the real world.
The provincial government introduced it in 2007, adding a Clean Fuel Standard in 2009.
B.C’s carbon tax started out as revenue neutral, was widely praised by environmentalists when it was introduced and was the model for Trudeau’s federal carbon tax.
Today, B.C.’s carbon tax is no longer revenue neutral, its annual emissions have increased in five of the last seven years and by 10% over the last three years.
Globally, despite 31 high-income OECD countries having imposed carbon taxes, cap-and-trade markets or a combination of the two, greenhouse gas emissions rose 62% between 1990 — the baseline year of the Kyoto climate accord — and 2019, according to United Nations data.
This while the UN is calling for drastic emission cuts within the next decade to avert what it describes as catastrophic human-induced climate change.
The problem, in addition to ineffective carbon pricing in the developed world, is that most emissions today are coming from the developing world, led by China.
While global emissions this year have dropped dramatically because of the pandemic, they’ll resume their relentless rise again as the economy recovers.
By Lorrie Goldstein