Reconsidering Trudeau’s Carbon Tax Plan from a Public Standpoint

Trudeau’s carbon tax, or price on pollution as he likes to call it, certainly seems like a valiant effort to counter the impending global environmental calamity. However, his “revenue-neutral” plan of implementing a baseline carbon tax with increasing stringency over time, packaged with a compelling tax rebate of 90% for Canadians, is facing substantial objection. The apparent plan is consistent with what climate scientists and economists have argued for decades: putting a price on carbon is the most efficient way to incentivize reducing emissions. In fact, William Nordhaus was recently awarded a Nobel prize in economics for providing conclusive evidence behind the benefits and effectiveness of a carbon tax. Why then, is Trudeau facing so much criticism for a seemingly efficient and favorable policy?

Trudeau’s speech in October at Humber College in Ontario was an example of visionary statesmanship. He showed exceptional prowess telling the truth about pollution: “pollution has been free so we have freely polluted.” However, as the Nobel prize-winner Nordhaus puts it, “The problem is not knowing what to do… [it’s] getting a consensus to act.” Because of the growing divide within the Canadian political system, Trudeau is facing more opposition to his environmental plans than he expected. A year ago, most of Canada’s premiers were left-leaning and supported environmental protection policies, but recent political changes have placed more conservatives in power, creating a force that can block the Prime Minister’s legislative plans. The backlash can be traced to politicians such as Doug Ford, the right-wing Progressive Conservative premier of Ontario who has gained immense influence in the political scene. Those in opposition to the prime minister’s plan believe a serious climate plan is possible without introducing a tax. Such proponents have what Trudeau calls “make pollution free again” attitudes, which represent the idea that a carbon tax is a governmental cash grab threatening the livelihood of workers that is not only ineffective in reducing CO2 but the impact would also be too costly to implement within Canada. These sentiments ultimately impede the expected success of the prime minister’s proposed plan and show that there is a need to reconsider the policy in order to increase the public acceptability of the carbon tax.

Prime Minister Justin Trudeau speaks about the carbon tax at Humber College - October 23rd 2018. Nathan Denette, Canadian Press.

Prime Minister Justin Trudeau speaks about the carbon tax at Humber College - October 23rd 2018. Nathan Denette, Canadian Press.

One of the primary concerns driving the opposition against the tax is the negative personal and nationwide economic impact, with the government seemingly raising revenue at the expense of Canadian citizens. This was the case in Switzerland where citizens rejected a energy tax in two separate occasion over 10 years apart, due to worries over competition and employment effects. Many question government motives and assume that the tax exists solely to increase government revenue, and not to reduce greenhouse gasses. In an attempt to address these concerns, Trudeau included a rebate in his carbon tax which promises to deliver almost all carbon tax revenues to the population, making it “revenue-neutral”; this means government gains are minimal from the tax. However, voters question the government's long-term ability to provide such rebates, and the rebate does not apply to corporations, aggravating already existing competitiveness issues within Canada.

Furthermore, a Danish survey shows there exists a belief amongst consumers that carbon taxes are not the best way to discourage environmentally harmful behavior, with many preferring subsidies for adopting lower carbon options over a coercive tax. People view carbon emission demand to be inelastic, meaning an increase in price caused by the tax does not yield a proportionate decrease in demand; the tax not only becomes inefficient but also burdensome on consumers. This can be true if individuals overestimate the costs of switching to sustainable options, or if those shifts are more expensive than predicted.
Lastly, the sentiment that the plan would yield a relatively minuscule global impact, because of Canada’s already-environmentally-efficient nature and the existing heavy environmental regulations makes it even more susceptible to the opposition. Given these concerns, Trudeau’s plan needs additional improvements.

Trudeau’s plan needs rethinking on at least three fronts: transition costs for consumers, competitiveness, and global impact. First, extensive research done in the UK on public resistance towards carbon taxes has shown that utilizing environmental earmarking to direct tax revenue towards emission reduction projects and to accelerate low-carbon research and development is a more publicly appealing policy than a rebate. Such earmarking signals demonstrate to the public that the government would directly support a reduction in personal costs for transitioning to energy efficient options, enhancing the tax’s effectiveness. Second, strong carbon pricing and climate policy can exist while keeping the domestic business competitive if greenhouse gas reduction programs to help businesses’ transitions to more sustainable options are implemented in addition to a rebate for consumers. Such transitionary programs could spur Canada to become an even stronger powerhouse in the realm of sustainable technology. Third, though Canada accounts for only 1.6% of worldwide CO2 emissions, which is trivial considering the size of its economy, setting an example in the realm of carbon-taxation is important to encourage other nations to do the same. Since rapidly industrializing countries like China and India have a considerably larger impact on accelerating climate change but lack Canada’s regulations and experience more rapid economic growth, incentives to switch to renewable options and tighten environmental regulations could be implemented in these nations. Canada is well positioned to provide global technical support through incorporating sustainable development principles into these countries’ economic and environmental policies. Such an approach to improve the world-wide climate would significantly enhance the attractiveness of Trudeau’s carbon tax.