This article originally appeared in on March 20, 2024.
Let’s face it, Canada’s debate about carbon pricing has become a dumpster fire. Unfortunately, that fire might end up scorching Canadians.
But maybe it’s not too late to douse the flames.
While the current federal government introduced carbon pricing, it has recently undermined the coherence of the policy. Carbon pricing works at low cost to reduce greenhouse gas emissions precisely because it lets the market – not politicians – identify low-cost actions. When the federal government exempted home heating oil last fall, it weakened that principle and ignited a political firestorm. In addition, it created market uncertainty by setting expectations that future political challenges might lead to further policy erosion.
Even though the policy is well designed overall, the federal government has failed in terms of explaining it to Canadians. Most people, for example, don’t know they are getting quarterly rebate cheques that, for the vast majority of them, fully offset the impact on their monthly budgets.
And many of those who notice the cheques don’t see why they make sense, even though the carbon price still incentivizes them to reduce their own emissions.
At the same time, the various political opponents are cynically exploiting this information gap.
It is politically convenient to claim that carbon pricing is all cost and no benefit for consumers, but it simply isn’t true.
Maybe the most egregious omission from the opponents’ speaking points is the absence of proposed alternatives. If Canada is not going to use carbon pricing, then how will we reduce greenhouse gas emissions? Expensive subsidies for clean technologies like those in the U.S.?
Regulatory policies like the Clean Fuel Regulation, even though the opponents tend to dislike these kinds of policies, too?
Though opposition to carbon pricing is certainly legitimate, any serious political opponent surely needs to state their preferred alternative. But it’s pretty quiet on that front. It almost makes you think they don’t care about climate change.
I know that theatre and blood sport is part of politics. But what a shame that our political debate has become so devoid of real information.
Because here’s the thing. Carbon pricing isn’t the only climate policy in town, but it sure is a good one, for three main reasons.
First, carbon pricing costs a lot less than alternative policies, even though the high costs of those alternatives tend to be hidden. Subsidies for emissions-reducing technologies require public dollars raised through more taxation. Spending more on cleantech means spending less on other things or having higher budget deficits. Regulations tend to be very intrusive and require specific actions that firms and consumers wouldn’t otherwise take, increasing costs.
Second, carbon pricing creates incentives for innovation. Opponents of carbon pricing love to talk about how “technology” will be the fix. And it might be. But technology doesn’t just drop from the sky – technological change follows market incentives, including those created by taxes. And while innovation reduces the costs of reducing emissions, it also creates opportunities for Canadian firms to export our technologies to other countries. Steady, predictable carbon pricing helps attract international capital for low-carbon, cleangrowth projects that very well might be at the heart of our future economic growth.
But most of all: carbon pricing works. It works because markets work. When emissions are more expensive, consumers find ways to avoid paying those costs. Carbon pricing has already reduced emissions in B.C. and Quebec and other jurisdictions that got a head start. It’s working today in the rest of Canada, and it will have even more impact in the future if we let it rise over time, as planned.
At the end of the day, the central imperative is to reduce emissions. Carbon pricing doesn’t have to be the main policy lever – though I sure think it should be.
The alternative policies can get the job done, but only at a higher cost. The less we rely on carbon pricing, the more we will have to rely on those costlier approaches.
What’s worse than political dumpster fires? Forest fires. Heat waves. Droughts. A Canadian economy stuck in yesterday. At some point, political games do not serve the country; they actively undermine the well-being of Canadians.
It’s time for Canadian politicians to get real. For the federal government, that means recommitting to its own carbon-pricing policy and doing a much better job explaining it to Canadians.
For all those opponents, it means proposing concrete policy alternatives to achieve Canada’s emissions goals that can be assessed on their merits.
But the status quo is politics divorced from policy. All heat, no light.
About the Author 
Chris Ragan is an Associate Professor and the founding Director of Ă山ǿĽé’s Max Bell School of Public Policy.
Ragan was the Chair of Canada’s Ecofiscal Commission, which launched in November 2014 with a 5-year horizon to identify policy options to improve environmental and economic performance in Canada. He was also a member of the federal finance minister’s Advisory Council on Economic Growth, which operated from early 2016 to mid 2019. During 2010-12 he was the President of the Ottawa Economics Association. From 2010-13, Ragan held the David Dodge Chair in Monetary Policy at the C.D. Howe Institute, and for many years was a member of the Institute’s Monetary Policy Council. In 2009-10, Ragan served as the Clifford Clark Visiting Economist at Finance Canada; in 2004-05 he served as Special Advisor to the Governor of the Bank of Canada.
Chris Ragan’s published research focuses mostly on the conduct of macroeconomic policy. His 2004 book, co-edited with William Watson, is called Is the Debt War Over? In 2007 he published A Canadian Priorities Agenda, co-edited with Jeremy Leonard and France St-Hilaire from the Institute for Research on Public Policy. The Ecofiscal Commission’s The Way Forward (2015) was awarded the prestigious Doug Purvis Memorial Prize for the best work in Canadian economic policy.
Ragan is an enthusiastic teacher and public communicator. In 2007 he was awarded the Noel Fieldhouse teaching prize at Ă山ǿĽé. He is the author of Economics (formerly co-authored with Richard Lipsey), which after sixteen editions is still the most widely used introductory economics textbook in Canada. Ragan also writes frequent columns for newspapers, most often in The Globe and Mail. He teaches in several MBA and Executive MBA programs, including at Ă山ǿĽé, EDHEC in France, and in special courses offered by McKinsey & Company. He gives dozens of public speeches every year.
Ragan received his B.A. (Honours) in economics in 1984 from the University of Victoria and his M.A. in economics from Queen’s University in 1985. He then moved to Cambridge, Massachusetts where he completed his Ph.D. in economics at M.I.T. in 1989.
