How to think about the carbon tax setback?

In general, economists consider the carbon tax to be the most effective measure for reducing emissions and tackling climate change. The Trudeau government seems to subscribe to this point of view. For example, its 2030 Emissions Reduction Plan states that carbon pricing is the “cornerstone” of the federal government's climate strategy. The trouble is that carbon pricing has a chequered history. Politically, it is a difficult climate policy to implement. And once in place, current studies show that it generates limited results in terms of emissions reductions. Two reasons stand out: a carbon price that is often too low and the presence of numerous exceptions. Canada is far from the only country experiencing difficulties decarbonizing its economy through carbon pricing. Why is it so difficult to price carbon? Political scientists offer an explanation: the selection and sustainability of climate policies depend primarily on the influence of interest groups on the political system. Under this reasoning, building a green economy presupposes the presence of coalitions that have an interest in decarbonizing the economy, and that can counterbalance carbon-intensive interests. Bruno Arcand is a doctoral candidate at the School of Public Policy and Administration at Carleton University and is affiliated with the Centre for Net-Zero Industrial Policy.Photograph courtesy of Bruno Arcand Many researchers therefore stress the need for governments to implement measures such as subsidies for green industries before introducing environmental policy such as carbon pricing and emission standards. A key reason is that green subsidies encourage the emergence of coalitions with an economic interest in reducing carbon emissions, creating economic opportunities for companies and workers around the goal of decarbonization, and thus encouraging them to advocate environmental policies. In addition, investment in green technologies reduces the cost of alternatives to hydrocarbon combustion, making them more attractive to consumers. The United States offers an interesting experiment in this respect. After failed attempts to introduce a federal carbon pricing mechanism in the past, the current administration now appears to be adopting a distinct strategy: investing massively in the domestic manufacture of green technologies. For example, one study estimates that the Inflation Reduction Act (IRA) could lead to US$780-billion in public support for green technologies by 2031. Moreover, these investments take place predominantly in Republican states that have long opposed climate action. This makes it more difficult for these states to oppose green energies when they derive economic benefits from their production. Will the IRA succeed in building coalitions strong enough to overcome opposition to climate action? The question remains open. But the political science literature is clear: the carbon tax is ill-suited to meet these political challenges. The first reason is that it encourages the reduction of carbon emissions before changing the balance of power within the economy. The second reason is that it encourages players to modify their emitting behaviours without first developing alternatives to hydrocarbon combustion. The third reason is that it tends to facilitate the mobilization of coalitions opposed to climate action around simple and often inaccurate messages. These challenges should sound familiar in the Canadian context. This is not to say that carbon pricing has no place in the fight against climate change. Instead, the idea is to recognize the importance of sequencing climate policies to address the economic (the lack of cheap alternatives to hydrocarbon combustion) and political (the opposition of actors with interests in carbon-intensive industries) challenges posed by the shift to net zero emissions. Concretely, this means putting the objective of building industries in the green economy at the heart of the federal climate strategy, with carbon pricing as a complementary measure (at least in the short term). The Canadian federal government's recent tax credits for clean technologies are a step in the right direction. Still, they could benefit from being more targeted to address the sector- and region-specific political obstacles to deep decarbonization. Asking politicians to be courageous won't be enough to fight climate change effectively; we must first recognize the regional realities of the Canadian context and adopt climate strategies that create the right conditions to deliver deep decarbonization. Bruno Arcand is a doctoral candidate at the School of Public Policy and Administration at Carleton University and is affiliated with the Centre for Net-Zero Industrial Policy. The Hill Times

How to think about the carbon tax setback?

It may be tempting to view the suspension of the carbon tax on oil heating as a lack of courage by political decision-makers. But the federal government's decision also illustrates the limits of a climate strategy built around carbon pricing.

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How to think about the carbon tax setback?

It may be tempting to view the suspension of the carbon tax on oil heating as a lack of courage by political decision-makers. But the federal government's decision also illustrates the limits of a climate strategy built around carbon pricing.

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