Conservatives need not fear the carbon tax
By tying the carbon tax to income tax cuts, the Conservatives can both tackle climate change and remain committed to small government
Conservatives have been divided on Party Leader Erin O’Toole’s plan to impose a carbon levy. On one hand, it is a much-needed invigoration after the Party had lost two elections back-to-back running on an anti-carbon tax platform. On the other hand, many fear that such a tax betrays the conservative principle of limited government. While this conflict may seem intractable, the two positions can be reconciled into one.
O’Toole’s plan comes in the wake of the Conservative Party’s defeat in the 2019 election — in which they made the carbon tax a central issue — signalling his willingness to adapt to changing electoral sentiments. (Pre-pandemic polling from the Angus Reid Institute indicates that climate change was the most important concern to Canadians.) Yet, the controversial nature of O’Toole’s shift in climate policy was exemplified by the Conservative policy convention’s rejection of the motion, “climate change is real and the Conservative Party should act upon it” — 54% to 46%.
The Conservative Party has been stuck in a cruel double-bind with regards to climate policy. Refusing to recognize global warming caused by anthropogenic carbon dioxide would leave the Party vulnerable to charges of ignorance, detachment, and dogmatism. Recognizing global warming, however, would require them to support government intervention into the economy — something that conservatives eschew. Such fears are evident in Conrad Black’s recent polemic against the carbon tax, accusing it of being “just a tax increase falsely masquerading as planetary salvation.” As O’Toole put it, the carbon tax, to Prime Minister Justin Trudeau, is a “temptation to use the revenue to fund his big government plans.”
For their part, the Liberal carbon tax returns 90% of the revenue in the form of individual rebates. Nevertheless, misappropriation fears persist. O’Toole insists that his plan ensures that “not a cent goes to Ottawa,” thereby preventing the possibility of the tax being abused to collect revenue for government programs.
Unfortunately, O’Toole’s plan also misses the mark, being riddled with difficulties and betraying conservative principles as well. For one, the proposed “personal low carbon savings accounts” are invidiously paternalistic and nanny-ish, requiring Canadians to use their savings to “help them live a greener life.” Worse still, the plan would require additional regulations and an overly-complicated system to track Canadians’ gas usage — a government-oriented solution instead of a market-oriented one.
Throughout this mess, one solution to O’Toole’s troubles has been conspicuously overlooked despite being beguilingly simple: tying the carbon tax to an income tax cut. Moreover, since the Conservatives have lamented that the carbon tax is regressive — disproportionately hurting the poor — such a tax cut can be structured progressively to counteract this effect.
A revenue-neutral solution has been championed by various think-tanks such as the Fraser Institute and the Centre for Climate Change Economics and Policy (CCCEP) and has been carried out in the United Kingdom, Germany, and Denmark to varying degrees of success. There are two advantages to this approach. First, by using a carbon pricing mechanism (what economists call a “Pigovian tax”) as opposed to regulations, the magic of the market is exploited to develop new technologies and streamline existing production processes to cut carbon emissions cheaply and efficiently. And second, by assuaging conservative concerns that the carbon tax revenue would be used to increase the size and scope of government. In fact, these advantages are referred to as the “double dividend hypothesis” — yielding the two dividends of reduced pollution and lower taxes. The biggest obstacle to such a solution is, as the CCCEP put it, “suspicion about commitment to revenue recycling,” which can be addressed by explicit guarantees to tie the carbon tax to income tax cuts.
Interestingly, Trudeau’s plan more closely approximates such a revenue-neutral solution with its individual rebates, however O’Toole’s most directly addresses the fear of an ever-growing government. If O’Toole looked across the pond instead of devising his plan alone, he could find the solution to his double-bind of reducing carbon and allaying conservative fears reflected in the various European countries’ energy tax reforms. Either way, whether it be Trudeau’s plan, O’Toole’s plan, or a distinctly conservative revenue-neutral scheme, any climate policy geared toward reducing carbon must transition our economy away from fossil fuels — including Alberta’s oil and gas industry — toward greener alternatives. That is something Conservatives have to acknowledge.
