Last week, Liberal Prime Minister Justin Trudeau followed through on his ultimatum and imposed a landmark carbon tax on four provinces that have defied implementing their own. Ontario, Manitoba, Saskatchewan and New Brunswick say the decision is unconstitutional and are challenging it in court. PM Trudeau cited Canada’s international commitments to fight global warming when he announced he would force a carbon tax on all provinces that did not come up with their own plans by April 1, 2019.
The federal “backstop” program applies to Ontario, Manitoba, New Brunswick and Saskatchewan, which make up nearly half of Canada’s population. With an upcoming federal election in October, polls show the Conservative party, which has pledged to scrap the tax, stands a decent chance of winning.
Federal projections show the average household cost of the carbon tax will range from CAD $202 to CAD $403 annually starting in 2019, depending on the province, while the average household rebate will range from CAD $248 to CAD $598. The rebates will rise in tandem with the increasing carbon price.
The carbon tax will add 4.4 Canadian cents per liter of gas, or 12 U.S. cents per gallon and this rise in coming years if the Liberals are re-elected. The government is pairing the new tax with “Climate Action Incentive” payments sent overwhelmingly to households, meaning the burden will fall disproportionately on small businesses.
It will raise about CAD $2.3 billion in revenue this year, rising to CAD $5.6 billion by 2022-2023, with the majority sent back to households. The economic impact of the measures is expected to be minimal and rebates will mean the net impact on gross domestic product will be small in the short term.
The carbon tax comes on the heels of a tax on industrial emitters that began in January, details of which are still being finalized. The new tax is the equivalent of a CAD $20 per tonne carbon price. That will rise by CAD $10 each year to CAD $50 by 2022.
Canada has little chance of meeting its climate change goals of reducing emissions by 30 percent from 2005 levels by 2030 and critics say carbon taxes are simply a cash grab from taxpayers that have no real impact on climate change.
PM Trudeau’s other efforts to combat climate change are also proving a challenge. Last year, the government unveiled legislation to overhaul environmental assessments of energy projects, paying more attention to greenhouse gas emissions. Critics say this will deter future investment at a time when existing projects are already in trouble.