By Theo van de Kletersteeg
Since April of 2019, Canada has imposed the implementation of a carbon tax in the four “backstop” provinces of Alberta, Saskatchewan, Manitoba and New Brunswick in an effort to reduce Canada’s ever-increasing releases of greenhouse gases (GHGs).
However, until such time as carbon taxes are increased dramatically, will these taxes accomplish anything or, in the words of Greta Thunberg, are they nothing but clever accounting and creative PR? Moreover, do we really need another costly federal program to collect and redistribute these taxes? I think not.
Over time, advances in technology have created the illusion that the earth can sustain an unlimited population. Occasionally, we find out that this is a fallacy, but then further advances in technology push the envelope further, and we find ways of accommodating further population growth. Today, it is clear that, unless mankind invents new technologies that will reduce its reliance on carbon to sustain himself, Nature will create a far more hostile environment that will, over time, re-balance the number of humans that the earth can sustain.
The scientists are unanimous about identifying carbon compounds as the chief culprit, and the eventual consequences of the continuous buildup of carbon compounds in the earth’s atmosphere. They talk about the necessity of limiting the rise in the temperature of the earth’s atmosphere to no more than 1.5 degrees C above pre-industrial levels, which they believe could be accomplished in the next two to three decades, if man somehow managed to stop loading more carbon into the atmosphere, or find ways to remove it. However, every human activity involves the production of GHGs, and technologies to neutralize GHGs have not yet been invented. While there is some progress in the development of such technologies, such technologies are likely to be very costly, applied on a global scale, and will likely involve a dramatic reduction in living standards. Furthermore, dealing with the cost of mitigation of the effects of climate change (fires, hurricanes, drought & famine) will occasion ever-increasing costs annually, which will ultimately lead to reduced global standards of living. Severe social disruption will likely be one of the consequences, as governments will no longer be able to raise sufficient revenues to provide customary levels of social services.
After more than a decade of talking, governments have initiated the first baby-steps in the process of change, resulting in Canada in a hodgepodge of carbon tax policies. While these policies represent a step in the right direction, they should more aptly be referred to as “creative PR” to make us think we’re actually doing something, whereas in reality the situation gets worse each and every day. Until such time as carbon taxes are increased dramatically, our existing carbon tax regulations will accomplish nothing tangible. As a business analyst, I strongly suspect that the very high cost to taxpayers of implementing these regulations will be well in excess of their expected minimal benefits.
We need more forceful action from our governments that will actually result in less carbon being released into the atmosphere. What we don’t need is PR about “objectives” that have been established for 2030 or 2050. We need to get serious. Here are my suggestions:
- Do everything possible to scrap the existing hodgepodge of carbon taxes.
The various provincial schemes are confusing, cost taxpayers a lot to implement, cost businesses headaches and money to comply with, and produce questionable results. Paperwork associated with their implementation is a burden on corporations. Furthermore, the federal scheme to return to individual taxpayers an imputed amount of taxes paid is not only costly, but runs completely counter to what we were taught in Psychology 101: if governments want citizens to consume less, citizens need to be taxed in a manner that relates to this consumption: the present plan of returning carbon taxes paid by consumers does nothing to change behaviour.
- Replace existing carbon tax schemes with a “bolt-on” tax to an existing tax.
The Goods and Services tax has been in operation for many years, is well understood, has an existing infrastructure cost, and is a fair consumption tax that does not harm Canada’s corporations. I suggest that an additional environmental tax be “bolted on” to the GST to replace existing carbon taxes. The tax rate could start at quite a low rate, say 1%, but can easily be adjusted by the federal government, as required. The tax would be charged on everything that the GST applies to, and would work in exactly the same manner. Collections and remittances would be made by businesses in exactly the same manner as collections and remittances for GST – there would be no incremental administrative expenses. However, unlike the proposed refunds of carbon taxes to residents of the “backstop” provinces, such refunds would not take place. In addition, proposed refunds of carbon taxes to be paid to corporations, in a manner that is yet to be determined, should also be cancelled.
A GST-like tax would overcome a fundamental problem associated with Canada’s existing carbon taxes: existing taxes are applicable only on the purchases of carbon-containing fuels. The taxes do not touch the purchase of goods, which might contain huge amounts of GHG-producing inputs. Any thing or any service we buy, from anywhere, contains a carbon element, directly or indirectly. The existing carbon tax only touches domestic sources of carbon-containing fuels. It overlooks the fact that carbon pollution is a global problem, and taxes Canadian consumption of hydrocarbons only. However, as global citizens we should tax Canadian consumption of any good or service, no matter their origin. For example, consider the GHG-producing inputs necessary to produce the steel, the plastic, rubber, and electronics to make a modern car. A GST-like tax would impose an environment tax on any taxable good, no matter where such goods are manufactured. A GST-like tax would capture all carbon inputs from any sources, domestic and imported.
- What would we do with all the additional taxes that would be collected?
At a rate of 5%, the current GST brings in about 12% of the federal government’s annual revenues of some $325 billion, or $39 billion. At a rate of 1%, the environmental tax might bring in some $7-8 billion annually. My suggestion would be to use these funds to achieve the maximum possible GHGs in the shortest possible time. How would we do that? We could do that by investing the funds to accelerate the conversion of Canada’s fleet of some 370,000 heavy-duty class 8 trucks to operate from diesel fuel to liquefied natural gas (LNG), in cooperation with large fleet operators. Obviously, there would be numerous alternatives to spend on carbon-reducing initiatives – I am merely suggesting one option for action. One method that I would favour is the subsidization of LNG fuel, rather than cash subsidies for conversions. The cost of subsidized LNG fuels should be low enough to persuade operators to pay for the high cost of diesel conversions, and should avoid wasted taxpayers’ money if converted trucks were to be sold or scrapped.
Subsidizing LNG would create numerous sizeable industrial and commercial benefits, such as producing the LNG in the first place, transporting it to distribution outlets yet to be constructed along the nation’s highways, and putting in place the capacity to perform high volumes of truck conversions. In addition to the thousands of jobs and new skills would be created, reduced consumption of diesel fuel would result in improvements in air quality in those areas that are subject to heavy volumes of traffic of diesel-powered trucks. Later, LNG subsidization could be applied to other domestic modes of transportation, such as marine transportation and rail.
The above proposal represents a suggestion to actively achieve measurable reductions in CO2 emissions. In the overall scheme of things, reducing class 8 truck emissions will not cause Canada’s CO2 reduction targets to be met, but they are a good start, and will focus attention on action, rather than talk or creative PR. Following implementation, better qualified individuals will undoubtedly propose other practical solutions that, taken together, will achieve real progress toward reducing carbon emissions. Let’s start doing!
In conclusion
The present carbon tax is an additional burden on business enterprises. In addition, the cost of public administration of this new programme will be considerable, particularly in light of reports that are currently circulating about the archaic state of government computer systems and software. Bolting the new tax onto the existing GST infrastructure is simple, will not be an incremental administrative cost to businesses, will not overtax dilapidated government computer systems, and will not require the hiring of any new government employees or contractors. In addition, because businesses are able to pass the tax on to the next buyer in the value chain, the ultimate cost of the tax is borne by the final user of the product or service.
Applying the carbon tax as a bolt-on GST tax will capture ALL taxable products and services sold in Canada from anywhere in the world, rather than just taxing Canadian carbon inputs. Global warming is a global problem, and any product or service we buy involves the purchase of carbon inputs, directly or indirectly, regardless of the point of origin of the product or service. Taxing all taxable products and services purchased by ultimate consumers is a more equitable way of dealing with the problem, and potentially raises a lot more money to be spent on pro-active environmental action.
The idea of returning carbon taxes collected to individual citizens and businesses is a bad idea that will cause individual citizens to do exactly the opposite of what government says it wants them to do. Governments need to be consistent in their policies, and returning carbon taxes collected to consumers will confuse them, and encourage them to pollute more. Making consumers pay more through a bolt-on GST tax will make the message very clear that environmental action is expensive, and will need to be paid for by all of us.
A bolt-on GST tax has the potential to raise substantial additional revenues which should be used to help finance the vast sums of money we will need to spend to make our carbon footprint less harmful. A bolt-on GST tax will allow governments of the future to increase revenues substantially, as the government of the day may see fit, with no additional investment in computer systems, or engagement of government employees.
The virtually immediate availability of large sums of new cash as a result of implementing a bolt-on GST tax will cause government to have to find ways of spending the funds responsibly, and in support of efforts to reduce the carbon footprint of Canadians, NOT to be used for general purposes. For years, governments have talked the talk about environmental action, but no meaningful concrete action was taken. Availability of cash will cause governments to start walking the walk. Have sunny days have arrived at last?