Ken Boessenkool: The carbon tax is dead. Long live the carbon tax

There is a dumb way to transition to an industrial-only carbon price, and a couple of smart ways. The Liberals chose the dumb way.

By: Ken Boessenkool

Veteran political columnist Paul Wells’ second rule of politics reads as follows: If everyone in Ottawa knows something, it’s not true.

As an avid admirer of Paul (subscribe to his Substack!) and his rules, I wondered whether the fact that everyone in Ottawa (and elsewhere!) is saying that the Liberals killed the carbon tax means that it must not be true.

In fact, I think it isn't. Paul Wells is right. Everyone in Ottawa is wrong.

Let's back up. 

The Liberals recently announced a basket of policies to shore up their political fortunes in Atlantic Canada. The essence of the package had three elements. 

First, a boost to the rural top-up to the carbon tax rebate. As keen observers know, but for inexplicable reasons the Liberals rarely talk about, the government sends out carbon rebate cheques intended to lessen or eliminate the net cost of the carbon tax.

It doesn't matter how much you make, you get a rebate. It does matter, however, where you live. When designing the rebate, the Liberals recognized that folks in rural Canada pay more in carbon taxes than those in cities, so rural folks got a 10-per-cent boost over city folks. As I've written on this site before, the top-up doesn't quite cover the additional costs for rural folks, so the Liberals smartly boosted the top-up from 10 to 15 per cent. That might not actually be enough, but it’ll help. 

Element two is what's causing all the kerfuffle. The Liberals eliminated the carbon tax on home-heating oil. This applies across Canada, but the reality is that this form of heating is used lopsidedly in Atlantic Canada, where a former fortress for the Liberal party is swinging away from them. 

Element three is necessitated by element two. With the carbon tax incentive for switching from home-heating oil to the most likely alternative — heat pumps — disappearing with element two, the Liberals have created a massive subsidy for heat pumps.

So there is a kind of internal logic to what the government has done. They’ve created carve-outs before for things like grain-drying and greenhouses.

The difference with this latest carve-out, and I think this is key, is that it was done on the retail side of the carbon tax, not the industrial side.

This is key because if you listen closely, the Liberal’s biggest threat — that would be Pierre Poilievre — has been campaigning hard on eliminating the carbon tax. He’s not always suitably precise, but I don’t actually think he plans on eliminating the entire carbon tax. What he intends to do is eliminate the retail side of the carbon tax.

Conservatives have supported industrial carbon taxes when given the chance.

Jason Kenney campaigned against the carbon tax, but the Alberta government still collected the industrial carbon tax during his time. Danielle Smith — another anti-carbon tax campaigner — still collects the industrial carbon tax today. And Smith has said it will rise to $170/tonne by 2030, a path set by the Trudeau Liberals.

Doug Ford is on the same path, shifting the industrial carbon tax from Ottawa to Queens Park — in other words, instead of Ottawa collecting the industrial carbon price revenues, Ontario will. As Alberta does. 

Now it’s entirely possible that both the industrial and retail carbon taxes will disappear if/when Poilievre moves into whatever dilapidated residence the prime minister gets to live in these days.

But I don’t think so. I think we are on a path that lifts, reduces or eliminates the carbon tax on the retail side, but maintains it on the industrial side. Far too much future investment is contingent on the industrial carbon price.

Now there is a dumb way to transition to an industrial-only carbon price, and a couple of smart ways.

Inexplicably, the Liberals chose the dumb way. Even if you could sort-of justify the regional tilt to the policy by pointing to compensating policies like the carbon tax exemption for grain-drying that predominantly benefits the west … that’s not how it felt to those who heat their homes with electricity or natural gas.

There was a smarter way. As I’ve written in more detail before, there are two groups for whom the carbon tax rebate comes up short — rural Canadians and middle-class Canadians living in suburbs. The Liberals top-up of the rural rebate helps rural Canadians, but the home-heating-oil carve out mostly helps middle-class Canadians in Atlantic Canada.

The Liberals are in deep trouble not just in Atlantic Canada, but also in the suburbs. In fact, suburbs is where the next election will be decided. Instead of a dumb carve out for home-heating oil, the Liberals should have eliminated the carbon tax on gasoline and diesel fuel. This would have helped those middle-class suburbanites and further benefited rural folk. In short, it would have made things fairer.

And there’s a perfectly rational pro-carbon tax argument for doing so, as I wrote in 2022 in that piece I’m now referencing for a third time.

The current excise tax on gasoline in Ontario is equivalent to a carbon tax of over $100/tonne and the current excise tax on diesel is equivalent to over $60/tonne. In 2022 the carbon tax is going to $40 per tonne, so the current excise taxes are already a higher carbon tax than what is planned. 

The same is essentially true across Canada. And in 2023 the carbon tax is $50 per tonne, so the math still works.

The Liberals could have smartly increased the rural top-up and even more smartly eliminated the carbon taxes on gasoline and diesel fuel (it is levied on top of those excise taxes). This would been regionally balanced, addressed affordability, maintained the substantive argument for the carbon tax and headed off a serious challenge coming from Pierre Poilievre.

The other smart way to eliminate the retail carbon tax is to eliminate the retail carbon tax. Instead he did the dumb thing and just exacerbated regional tensions.

But, and sorry for taking that long detour to get here, none of this means the industrial carbon price will disappear.

That’s not where the fight is.

So the (retail) carbon tax is dead. Long live the (industrial) carbon tax.

Ken Boessenkool is a founding partner of Meredith Boessenkool Policy Advisors.

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