I am pro-carbon tax, and this is an essay in support of that position. This argument is designed for climate skeptics and carbon tax opponents. I encourage you to read through; if you disagree with me by the end, explain why in the comments, and I will gift you one share of Imperial Oil LTD.
I. Why you probably make money from the carbon tax.
The carbon tax comprises two parts: a consumer tax on fuel, and a tax on industrial emissions. Notably, a majority (53.4%) of the money raised by the government through the carbon tax each year comes from industry, whereas 46.2% comes from individuals (0.4% comes from other sources, like investments).
In 2023, the average Canadian benefited more than they lost from the carbon tax. 80% of Canadians received more money than they paid annually—the rebates trump the costs. The average Ontarian, for example, profits 300 dollars per year.
This makes sense. All the money raised is directly returned to the province it came from, with 90% of the revenue collected each year directly returned to households. Most of the money raised comes from big companies, and all the money returned goes to Canadians. The “Carbon Profits Redistribution” program may be a more fitting name.
II. Climate change is real and dangerous.
97% of climate scientists believe that humans are changing the climate. That is astounding because there is virtually nothing that 97% of people agree on. Let’s be silly for a moment:
Only 90% of Americans believe that the Earth is round.
Only 87% of scientists believe that evolution occurs due to natural processes.
In 2021, only 75% of Americans believed that Biden was the president.
If you don’t trust the scientists or my sources—that is okay. Trust yourself. Think back ten years, or even to your childhood. The summers never got this hot. The winters never died out so quickly. Sure, the Earth’s temperature naturally fluctuates—but in the last century, our rate of change is 1,000% faster than previous fluctuations. Something is off.
The wildfires that perpetually haunt BC are not familiar ghosts. Consider the largest fires in Canadian history; of the top ten, six occurred after 2011, and four of them occurred in the last decade. This is not normal.
What it is, is bad. As temperatures rise, wildfire rates increase. The fires threaten our homes. The smoke ruins our air quality. The shortening winters promote mountain pine beetle populations, which destroy our forests. The rising sea levels threaten our coastlines. Hurricanes, heat waves, and droughts threaten our friends and fellow humans.
III. The Carbon tax is an effective way to reduce climate change.
Imagine, for a moment, that you own a home with a nice backyard, and you are looking for somebody to mow it. Landscaper #1, Dylan, does a good job and hiring him is quite cheap. Landscaper #2, Jane, does a similarly good job but is slightly more expensive. Before you decide to hire Dylan—you should know that, to save time and money, Dylan will leave piles of grass clippings and Diet Pepsi cans littered around your lawn. You decide to charge Dylan a garbage tax—a small penalty for his mess. Dylan begrudgingly accepts this tax and raises his price to account for the necessary cleanup. He is no longer able to outcompete Jane so easily, which means more competition and lower prices for landscapers. Best of all, your yard is cleaner!
The Kearl oil and gas field topped the list of Canadian emitters at 20.62 million metric tonnes of CO2 released in 2022. The average Canadian emitted 15.22 tonnes that same year. One Kearl equals 1.35 million Canadians. Further, Imperial Oil, the British company, which owns 71% of the field, profited 3.62 Billion dollars in the 2023 fiscal year.
Let's start weaving the narrative. A single, immensely profitable, British corporation is raking in billions of dollars each year while doing more damage to the environment than one million Canadians. That does not seem very fair. This environmental damage requires cleanup—millions of dollars for firefighting, for example. To be sure, everybody is somewhat responsible for the mess, but we have established that Kearl is the most responsible—1.35 million times more responsible than you or I. Do they pay their fair share? No, they do not. They pay corporate taxes in the UK! So, what do we do? We charge a garbage tax—for the carbon you emit, a tax you must remit.
What does this tax mean for us? Firstly, it offsets the costs of pollution. We can theoretically use this money to pay for cleanup measures such as firefighting. Secondly, and more importantly, it reveals the “true cost” of doing business—this is called “internalizing negative externalities.” When McDonald’s is done with their fry grease, they pay a company to come and collect it. It might be cheaper to dump the grease into their neighbours’ parking lots, but we don’t want to incentivize grease dumping, so we force them to internalize the cost by paying for disposal.
The carbon tax means companies like Kearl are less free to spray their metaphorical garbage and grease all over Canada. It means that they need to price the ‘cleanup’ cost into their operations. This is doubly good because it financially incentivizes these companies to innovate carbon-reduction techniques. Before, Kearl had no reason to participate in the cleanup. But now, cleaning up saves them money.
So the tax effectively fights climate change by forcing corporations to reduce their mess. It incentivizes innovation, promotes good competition between energy sources, and, best of all, your yard stays cleaner.
And a cleaner yard is good. An ounce of prevention is worth a pound of cure. And “the cures” for climate change are indeed, extremely expensive. Disaster relief, firefighting, and refugee crises are not easy crosses to bear. The carbon tax has a projected benefit of 23.1 billion dollars in avoided climate-related costs by 2030. By 2030, the carbon tax is projected to reduce Canada’s emissions by approximately 50%. That represents 72 million tonnes of CO2 never entering the atmosphere. Carbon pricing works, which is why Stephen Harper proposed it in 2007, and why this meta-analysis of 21 carbon Pricing schemes around the world concludes that “Across carbon pricing schemes, we find that on average the policy has reduced emissions by –10.4% [95% CI = (–11.9%, –8.9%)]. This effect is both substantial and highly statistically significant.”
The Parliamentary Budget Officer (PBO) published an independent report examining the economic effects of the carbon tax (which was cited at length by carbon tax opponents and the Conservative party themselves). It points out, correctly, that “the potential economic benefits of reducing Canada’s emissions based on the social cost of carbon would largely accrue to residents in other countries.”
However, Canada is the 12th highest CO₂ emitter per capita (even worse than the USA!). This implies that we bear some of the highest responsibility for the future harms of climate change. Aside from being dishonourable, this marrs our reputation. According to the PBO, reduced global emissions “would help to lower economic costs of climate change in Canada and Elsewhere.” To make significant environmental progress and reap the economic rewards, Canada must work with other countries. Without skin in the game, Canada has less credibility to negotiate future multilateral deals. Yes, this still implies some sacrifice on Canada’s part for the world’s benefit; however, if this prisoner’s dilemma is to ever end, somebody must act. Fortunately, the costs of acting, for Canada, are not so bad.
IV. The cost increases are small.
The carbon tax is fairly criticized because it is a new cost for Canadians to bear. The direct cost of the tax is compounded by the indirect costs of prices rising across the board. The Canadian people are already hurting for cash—inflation is at the tip of everybody’s tongues, and though poverty has been down since 2015, it has risen year after year since 2020.
Though these are valid concerns, fear may overshadow the actual negative impacts. Firstly, the direct cost of the tax is inconsequential, because the average person receives more money than they pay from the carbon tax. Yes, some people—people who own large homes, travel frequently, and consume heavily—pay more than they receive. However, those people are certainly not the same people who are severely harmed by the cost of living increases. Those who can afford a Hummer and multiple vacations a year can surely afford to pitch in a few dozen dollars.
Secondly, and more importantly, are the indirect costs of the carbon tax. The indirect costs include cost increases and larger harms to the overall economy. These are more salient harms, but they are still overstated. Only approximately 0.6% of consumer price increases from 2015 to 2023 can be attributed to indirect taxes as a whole. Even assuming that the carbon tax was the only indirect tax in Canada, its effect would still be minimal. That is to say that, if you bought a carton of eggs for $3.00 in 2015, 8 years and one carbon tax later would raise the price to $3.018 in 2023. The vast majority of the cost of living increases are due to external factors.
By 2030, at the peak carbon tax of 170 dollars per tonne, the economic harm would be large. Many articles attacking the Tax often cite the PBO Report which concludes that the “average” costs to the Canadian household are higher than the benefits. This is true. However, the PBO report does not quantify or include any positive indirect effects of the carbon tax; more importantly, “averages” are quite misleading.
Yes, The “average cost” to a Canadian household at the 2030-2031 peak of the carbon tax, is $681. But remember, this tax affects rich Canadians the most. If we only look at the first 4 quintiles of Canadian households (the bottom 80 percent by income)—those who make $114,000 or less, the annual cost of the carbon tax including all direct and indirect costs is only $61 per year. If we look at the bottom 60% of Canadian households—those making $79,000 or less per year, the annual cost is negative $238 per year, meaning they get money back.
V. Be wary of your sources
So many of the anti-carbon tax sources are incredibly misleading or straight-up dishonest. Moreover, their claims often come unsourced, or mis-cited.
Franco Terrazzano, of “Thetaxpayer.com” wrote a short piece titled “Carbon Tax Costs Families Hundreds More Than Rebates.” He cites the same PBO report, which, importantly, is an estimate for costs in 2030. Terrazzano cites the 2030 numbers as numbers from 2023—either deliberately or merely ignorantly misleading his readers into believing that the Liberal government has actively lied about the current rebates.
The Fraser Institute, which received millions of dollars of funding from oil executives, published an article in the Ottawa Sun titled “Federal Government Should Acknowledge the Impact of Carbon Tax Hike.” This article cites numbers from a previous PBO report, which accidentally included numbers from the industry carbon tax when calculating effects on individual households.
Breaking News: Retraction Nowhere to be Found.
VI. In conclusion
I don’t think the carbon tax is perfect, nor the most effective method of carbon emission reduction. Albeit flawed, it is a good policy worthy of defence. There are problems with the carbon tax; however, those problems are outweighed by the benefits. At its peak in 2030, the carbon tax would solely financially harm top earners while redistributing money toward the median Canadian. If you value our environment, air, and future, the carbon tax is an effective, fair, and productive way to hold big polluters accountable for their mess.
VII. Problems in this essay:
There are many, but I have listed a few big ones:
I haven’t considered every nuance. There are likely many edge cases I haven't considered
I didn't examine the numbers myself. I trust the sources I used, but I recognize that they may be biased (especially those coming directly from the Govt Canada website).
I oversimplified many of the mechanics of how the tax works, climate change, and so on.
Do you agree or disagree? What have I missed? I encourage you to comment, yell, or compliment me in the comments below!