Ottawa’s Carbon Tax Hike Out Of Step With Global Reality

Canadian taxpayers need financial relief during the COVID-19 crisis. Carbon taxes are an obvious place to start

Prime Minister Justin Trudeau has chosen to make life more expensive for Canadians by increasing the federal carbon tax by 50 per cent amidst the COVID-19 economic and health crisis.

Meanwhile, governments around the world are moving in the opposite direction because hiking taxes during a global pandemic is a bad idea.

Provinces have already tapped the brakes on their own carbon tax hikes.

British Columbia Premier John Horgan cancelled the planned April 1 carbon tax hike.

Instead of mirroring the federal carbon tax hike, Newfoundland and Labrador is maintaining its tax at $20 per tonne.

The price of carbon allowances in the Quebec-California cap-and-trade system has also fallen due to COVID-19 and the current economic realities.

The European Union’s cap-and-trade scheme, which applies to 30 countries, has also seen its rate drop significantly. For most of 2019 and early 2020, EU carbon prices traded around €25 per tonne before nosediving to around €15 per tonne in March. The EU’s cap-and-trade tax rate has fallen 32 per cent below its 2020 peak, according to the most recent data available.

While the tax rate has increased since bottoming out, S&P Global Platts Analytics forecasts the COVID-19 shock will keep downward pressure on the cap-and-trade market.

Other countries are providing further carbon tax relief.

The Norwegian government reduced its carbon tax rate on natural gas and liquefied petroleum gas to zero and will keep the rates below the pre-COVID-19 level until 2024. Norway also deferred payments on various fuel taxes until June 18.

Estonia Finance Minister Martin Helme formally called for his country to consider leaving the EU’s cap-and-trade carbon tax system to provide relief. The prime minister later announced that Estonia would remain in the EU’s carbon tax system but the government lowered the excise tax on electricity to the minimum allowed by the EU, and lowered its excise tax on diesel, light and heavy fuel oil, shale oil and natural gas.

“Due to the economic downturn, both people’s incomes and the revenue of companies are declining, but daily household expenses such as electricity or gas bills still need to be paid. To better cope with them, we are reducing excise duty rates on gas and electricity for two years,” Helme explained.

Outside of the EU, the United Kingdom is saving its taxpayers between £15 and £20 million a year by walking back its plan to increase its carbon tax top-up.

New Zealand’s cap-and-trade tax rate has fallen by more than 20 per cent this year.

And South Africa pushed back carbon tax payments by three months.

It’s worth noting that it’s unlikely Canada’s carbon tax will have any meaningful impact on global emissions. Only 45 countries (out of 195 countries worldwide) are covered by a carbon tax and only 15.6 per cent of total emissions are covered by these taxes, according to the World Bank. And about half of the emissions covered by carbon taxes are significantly lower than Canada’s federal rate and too low to make a difference.

With Canada only accounting for 1.5 per cent of global emissions, it’s easy to understand Trudeau’s acknowledgement that, “even if Canada stopped everything tomorrow, and the other countries didn’t have any solutions, it wouldn’t make a big difference.”

Now more than ever, Canadian taxpayers need relief. With carbon tax burdens declining around the globe during the COVID-19 crisis, walking back the recent carbon tax hike should be a no-brainer for our federal government.

By Aaron Wudrick and Franco Terrazzano

Aaron Wudrick is federal director and Franco Terrazzano is Alberta director of the Canadian Taxpayers Federation.

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