Taxing energy to curb climate change may hurt economy

New in 2019 are tax increases that will impact homes and businesses for gasoline, natural gas and propane. For the four provinces objecting to the federal government’s imposition of mandatory carbon taxes, fuel at the pump will be subject to a 4.42 cent per litre bump, a 3.91 cent per cubic metre increase for natural gas and a 3.1 cent per litre jump in propane prices. All of this is supposedly in the name of curbing global warming.

This pricing is predicated on a carbon tax of $20 per tonne but it doesn’t stop there. Part of the federal announcement was an increase of that rate by $10 per tonne annually until 2022. But even government scientists are saying the tax would have to rise to $100 tonne to be marginally effective at reducing carbon emissions. The environment department is looking for even more, saying it wants a carbon tax of $300 per tonne. So, it’s highly likely these taxes have nowhere to go but up.

The audacity of this strategy is that government would have us believe that Canada with a population of 37.3 million can save a world population of 7.7 billion from climate change. Canadian fuel prices are higher than in the United States largely because of federal and provincial taxes that are now running more than 30 percent of the price per litre at the pump. This puts Canada at a distinct competitive disadvantage with the U.S., our largest trading partner, with a population of 330 million.

The elephant in the room with this policy is the belief that carbon fuel use will decline with increases in price. France fuel prices were already running at the equivalent of $6.67 when French President Emmanuel Macron announced a further five percent increase in November. The already overtaxed French rebelled and the increase was dropped. The moral of the story is that if you have no substitutes for carbon-based fuel, taxing the living daylights out of it will only hurt the taxpayer with no meaningful results.

Immediately trying to fund the substitutes and abandoning existing infrastructure are not proven strategies and the U.S. claims they would likely bankrupt even its very deep pockets.

A further lesson in tax and energy policy for Canada was made in a recent article in the Wall Street Journal. With the U.S. tariffs on Venezuelan heavy crude, Canada would have been an obvious supplier to fill the gap in supply. Because of federal and provincial regulations, taxes and aversions to pipelines, we can only transport heavy crude by rail for US$20 per barrel versus a pipeline cost of $12.50 per barrel. As a result our oil fields and workers are sitting idle as well as rail tanker stock.

Taxation can be a powerful tool to benefit Canadians, but when ill-planned or misused, our economy and workforce will suffer and Canadians will still have to bear the cost.

Grant Diamond is a tax analyst in Saskatoon, SK., with FBC, a company that specializes in farm tax. Contact: fbc@fbc.ca or 800-265-1002.

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