Jen Gerson: The problem with the carbon tax is the carbon tax rebate

Policy and politics are not discrete and inviolable little bubbles. It's all politics, babe.

By: Jen Gerson

"Conservative premiers across this country are misleading Canadians, are not telling the truth," said Prime Minister Justin Trudeau. "Eight out of 10 families across the country in federal backstop jurisdictions make more money with the Canada Carbon Rebate than it costs with the price on pollution."

I want to talk about this quote. 

In recent weeks, it's become popular among the more Liberal minded to buy into the idea that the carbon tax is great and that the only reason more Canadians don't love it is because they've been misinformed about those dastardly Conservatives about how awesome it really is. After the rebate, 80 per cent of households get more money back than they spend, after all. And if the carbon tax goes down, so too does the rebate. 

The problem isn't the policy, we’re told, but rather the politics. The Liberals simply have a "communications" problem on this, their signature policy achievement, we are assured.  

I think they're wrong. I think they're being a bit misleading on the math — and I'll get into that. More crucially, I think they're fundamentally incorrect in their understanding of the nature of the communications problem. They think the key to redeeming the carbon tax is to highlight the Canada Carbon Rebate. That's an error, and one that will ultimately prove fatal to the policy. 

The problem with the carbon tax is the rebate.

MESSAGE DILUTION

Let's start by talking about how we communicate ideas to the public. If a government wants to impose a new law, tax, regulation, or vision to the electorate, it should go about that task by communicating its intentions as clearly, simply, and efficiently as possible. This is basic 5Ws stuff. What do you want to do? Why? How will you implement it? And, the question we have totally forgotten to ask ourselves at every level of Canadian government: what concrete and measurable objectives are you hoping to accomplish by it? 

The carbon tax should be an easy one to communicate. "We want to reduce carbon emissions by taxing stuff that belches out greenhouse gas emissions." Cool. Simple. Great. "This is the best policy because a carbon tax incentivizes good investments in technology while doing the least damage to the economy." Got it. 

So why has this policy gone so radically off the rails? Why do people hate it so much? Why do the Conservatives gain so much traction whenever they shit-talk it. For just a moment, let's not rely on the lazy scapegoat of "evil Conservative misinformation." For the sake of argument, just humour me. Because I'm going to offer another explanation.

Message dilution.

The carbon tax is unpopular because even though the policy itself is simple and easy to communicate, it's not clear to me — or anybody — what the government is actually trying to accomplish by it. 

If the Liberals actually had faith the carbon tax was the most efficient means by which to reduce greenhouse gas emissions, they wouldn't be diluting that claim by plying every single other market inefficient policy on top of it. If a carbon tax is a clean, pro-market approach, then why are the Liberals adding emissions caps, multi-billion dollar subsidies for EV plants (and EVs!), and forced phase outs of gas-powered cars? Aren't these the sorts of changes the market was supposed to reward on its own thanks to the signature carbon tax policy? 

If what the Liberals are claiming about the efficiency of the carbon tax is true, then none of these other highly punitive alternative policies ought to be necessary — and pursuing compounding environmental strategies undermines both the public messaging and trust in the efficacy of the tax itself. What is the virtue of the most efficient policy if it’s paired with all the old inefficient ones? Not only is this confused governance and economic policy, it's message dilution. 

Let's take another example. 

Is the purpose of the Liberals' carbon tax to materially reduce carbon emissions — or is it a wealth redistribution program? I ask because every time the Liberals defend the carbon tax by resorting to the awesomeness of the rebate, what they cease to talk about is how effective it is at actually reducing carbon emissions. 

Instead, we fall into an endless series of counterproductive debates about whether what individuals are getting from the rebate equals what they're paying out in tax. And that debate is repeated every quarter, and each time the carbon tax rises. In other words, our entire political discourse about the tax is centred on wealth redistribution — not emissions.

That makes people suspicious of the government's actual goals, and skeptical about its claims. This, again, is a problem of message dilution. If you cannot clearly express your intentions, then you're not going to get political buy-in to your aims. This problem is particularly acute on a policy that is — by definition — demanding a sacrifice of cash and/or quality of life by Canadians. People can get on board with sacrifice, but only if it's tied to a clear, obtainable, and material objective. 

BEWARE GOVERNMENTS BEARING GIFTS

And here's where we get into the real dark heart of the problem.

It's the rebate itself. 

I understand why the Canada Carbon Rebate happened. The government wanted to introduce a carbon tax without disproportionately penalizing the poor — the demographic least able to make the investments and lifestyle changes necessary to respond to the tax. But did that relief have to come in the form of a rebate? 

Well, no. 

There are lots of methods a government can use to ease poverty. But governments love themselves a rebate. Why? Because rebates are normalized vote buying. One that all political parties are guilty of using. The Liberals implemented the rebate thinking Canadians would hit their mailboxes every quarter, see a few hundred bucks, and get warm fuzzy feelings for Papa Trudeau and the natural governing party. “Government’s looking out for me!”

Getting government cheques is popular, and the Liberals were no doubt trying to replicate the appeal of the Canada Child Benefit. 

But that didn’t happen here. The carbon rebate seems to be one of those rare examples of people getting mad at receiving government money rather than being grateful. Why? 

Well, may I suggest that it's because every time people open up those cheques, instead of processing the dopamine hit of “free” money, they're instead reminded of how much they had to pay in to get it. They do the math in their head, think about their rising grocery bills and gas, and come away thinking "not worth it." Every single quarter, millions of Canadian households are feeling as if they are paying dollars to get dimes — and it's pissing them right off. Further, demanding they acknowledge they’re better off in the exchange is only adding salt to the wound. Throwing Parliamentary Budget Officer (PBO) reports at them doesn’t change their minds. It just pisses them off more.

To put it more pithily — a benefit is a gift. A rebate is a value proposition. And a hell of a lot of Canadians are looking at this rebate and determining that its value is wanting — all the more so as the goals of that purchase haven't been clearly articulated. 

This started to feel even more disingenuous when the Liberals lifted the carbon price on home heating oil for a few years, and increased the rebate for rural Canadians. All of this to stall plummeting support in Atlantic Canada, a Liberal stronghold. This choice undermined the core logic of the virtue of the carbon tax, and revealed it to be little more than a bribe — and a poor one, at that. 

I do realize that this is the moment when the tax's staunchest defenders are going to swoop in with their talking points about how the tax is almost revenue neutral. The PBO found that 80 per cent of households are further ahead with the carbon tax than without it, yada yada, etc. I wonder how many of these people have actually read the report — I admit I hadn't until one of our Line commentators linked me to it directly. Yes, most households — and I'll note, households are not individuals — are better off on the direct cost of the carbon tax. That is, they get more in the rebate than they pay directly.

What's always omitted in these talking points are the indirect costs. The PBO report also found that when we factor for those, most households are actually worse off even after the rebate.  

And of course that's the case. It would have to be! The very purpose of the policy is to inflict enough pain to incentivize lifestyle changes. The pain is the point — and I think the government would be infinitely better off to communicate that goal simply, honestly, and directly. "Yes, we're asking you to make sacrifices for the greater good of your children and grandchildren." Paradoxically, this tax would be easier to sell if there were no rebate attached at all — rather, if it were a more gradual tax that recognized the kinds of changes it's intended to encourage will happen over generations. 

This, I would argue, would be much more effective than trying to obfuscate the trade offs of emissions goals by couching them in a wealth redistribution scheme. 

POLITICS IS ICKY 

Forgive me for harping on the economists again — I did that plenty last week in the wake of their super non-political open letter trashing the Conservatives primary "axe the tax" policy plank in the same week Pierre Poilievre was holding "axe the tax" rallies and Conservative premiers were appearing in Parliament to ask the Liberals to re-consider raising the tax. But one of the things I kept on seeing from that quarter — in addition to insisting that their motives are pure of dirty political intent — was this weird psychological split between the concept of engaging in politics, and in advocating policy.

The distinction is false. Policy and politics are not discrete and inviolable little bubbles. It's all politics, babe. It's turtles all the way down. A sound policy that can't be sold politically is just a doomed academic theory. Good policy is good politics. And politics — also known as salesmanship, persuasion and implementation — is just like any other economic externality. It is a factor in how we weigh the value and virtue of a policy. 

If one's favoured policy can't secure its footing politically, we have two choices. We can either lament the terribleness of humans and how they function in the real world (a legitimate take, but unproductive), or we have to recheck our assumptions and determine whether or not the policy really was as sound as we first imagined. If the models aren't tracking reality, then there's a problem with the models, not reality.

How people feel about policies matters. If the carbon tax is so great for the poor, then why do the poor hate it? Is that the result of poor communication and Conservative misinformation, or are people with different values and lenses simply interpreting different data and experiences in a different way? Are they seeing something that you are not? 

When Liberals claim that the carbon tax is a great policy that just isn't being communicated very well, what I hear is: "we know what's better for you than you, and you're just too stupid to know it."

Hey, maybe that's true! But maybe it’s not.  

Another way to think of this is to use the old metaphor, "the map is not the territory." Policy is the map. Politics is the territory. If your policy is sputtering at first contact with reality, then there is a problem with the map by default. Navigators of this terrain ought to try to understand what that problem is. 

Academics — and, ahem, economists — get to live in the world of Platonic ideals. Politicians have to meet people where they actually are on those ideals. Canadians live in a borderline technocratic state in which our institutional elites suffer from a deep disdain for democratic instincts; as a result, we have a tendency to lionize academics, while demonizing politicians. And while I like to take shots at politicians too, because it's funny and easy, this is actually a really piss poor way of thinking about power and advocacy in a, uh, democracy. 

Academics, advocates, politicians, pundits — everybody has a role to play in a democracy. The ivory tower types should be lauded for offering invaluable expertise and insight into complicated fields of math, science, and social policy. But they don't serve themselves well when they either refuse to engage in politics because they think it's beneath them — or, worse — when they trick themselves into believing that they're not engaging in politics by virtue of their integrity or purity of intent. 

There's a trick to being influential, and it's not raw IQ, or academic credentials, and it's certainly not moral uprightness. It's self awareness. Understanding where you sit in a marketplace of political actors, and leveraging your strengths accordingly. 

To that end, I was asked this week how I would go about advocating for a carbon tax policy in the current environment. There's an answer to that, just not one that carbon tax advocates are going to like.

RESURRECT THE TAX

Sometimes the first step in victory is admitting defeat. The carbon tax was doomed the moment the Conservatives — now almost 20 points ahead in the polls — decided to make axing it a key policy plank. They're too invested now to change course. Advocates should instead focus on preserving large emitter and industrial carbon taxes, and then building a conservative case for the revival of a consumer carbon tax on a roughly 10-year time frame. 

Such an argument would highlight the importance of a carbon policy that keeps Canada in line with global norms and maintains our competitiveness and probably ties us to U.S. carbon pricing schemes. 

I would recognize that a moment of high populist anxiety and a cost of living crisis is a moment in which appeals for a tax of any kind are unlikely to gain significant traction. Appeals to authority are pointless in the face of growing institutional distrust. And open letters — of any kind on any subject — are always a terrible idea. Always.

Hundreds of committed individuals would be much better off building personal and professional bridges to individuals in every political party, in every governmental jurisdiction. Write letters and op eds. Figure out who party power players are. Meet with MPs and local riding associations who can bring ideas forward at convention. In short, figure out how to lobby. It’s a skill like any other.

Lastly, if a carbon tax must be revenue neutral, it should not be a tax increase, but rather a tax shift, tied to substantive cuts in the GST, or income tax. But, for the love of God, when we all revisit this policy again, please remember to reconsider the rebate.

The rebate isn’t the solution to the carbon tax. It’s the problem.

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