Friday, July 12, 2024
Fair Comment

Two imperatives: climate action and affordability

Can we simultaneously address both?

The federal carbon pricing system has sparked vigorous debate in the Pontiac. Many of you have written to me on this subject, expressing views on whether to maintain, modify, or scrap it altogether. Initially, it surprised me. After all, Quebec adopted its own cap-and-trade carbon system, so the federal system does not apply to us. However, I have come to see that this conversation is about a national path forward on climate policy.
First, let me say that I wholeheartedly agree with all those citizens who argued that we cannot afford to ignore the economic hardship faced by so many of our neighbours. Our economy is still recovering, and it is a rough time not only for those on fixed incomes but for anyone buying groceries or pumping gas into their tank. Thankfully, we have just about worked our way through an inflationary spike. Still, any policy that threatens to pinch our wallets needs to account for those struggling to make ends meet.
Can we simultaneously address both the imperative of climate action and the imperative of affordability?
Let’s take a closer look at federal carbon pricing. The system does not apply in Quebec, but in provinces like Ontario where it applies, the proceeds of the carbon pricing is returned to Canadian families as a quarterly “carbon rebate”. In Quebec, the proceed is used to invest in clean energy and finance initiatives that reduce our emissions.
You may wonder why so many countries have embraced carbon pricing as the preferred approach to reducing our greenhouse gas emissions. There is a consensus among economists that carbon pricing represents the most effective and least intrusive method for facilitating
the transition towards a more sustainable economy. Carbon pricing, though, isn’t the only way. The U.S. (with the exception of California which has a cap-and-trade carbon system) has adopted a big government solution where it is borrowing trillions to subsidize corporations to reduce their emissions. Our government has put its faith in the market. We believe that it is better to rely on the market to steer companies away from pollution. Despite all the noise, carbon pricing is working. A third of our emissions reduction is attributable to carbon pricing. The rationale behind it is simple: when something costs more, people use less of it.
What would happen if we scrapped the carbon pricing system in 2025?
Canada, like our neighbors and OECD partners, signed the Paris Accord. We cannot dodge our responsibility and leave other countries to shoulder the burden of reducing greenhouse gas emissions. And if we did, our economic partners are hardly going to stand idly by and allow their entrepreneurs to be undercut by what they would then consider to be products from a dirty economy. They would immediately slap a “carbon border adjustment” on Canadian exports. We cannot afford to be left behind.
So, what would be the alternative to carbon pricing?
The conservative leader has yet to propose any alternative. Some of my conservative colleagues in the House have argued in favor of a policy that places greater emphasis on technology and on subsidizing corporations. This approach has merits – especially in the agricultural sector – but adopting this solution for all sectors of Canada’s economy would come with a hefty price tag. Most economists estimate that, in Canada, this would run at roughly $30 to $60 billion annually directly from the public purse. It would force the government to either raise taxes or increase deficits, probably both.
What I find ironic about our debate around carbon pricing is how it has flipped the traditional script. Traditionally, Conservatives endorse letting the market operate freely. Now fiscal conservatives are being forced by their leader to defend a policy that, to be effective, would substantially increase the deficit and entail hefty government oversight and onerous regulation. Meanwhile, Liberals are championing a market solution to drive the green transition originally advocated by conservative-leaning economists that does not require increasing spending and involves significantly less government intervention. Ultimately, our debate should help us to agree on the best path forward. As floods and forest fires in the Pontiac have shown us over the last decade, climate change is no longer tomorrow’s problem. I remain convinced that carbon pricing is the best way to go. It is cost-effective, drives green innovation, and positions Canada for a cleaner, more prosperous future. But if you or anyone else has a better solution, I would love to hear your insight.
Sophie Chatel
LL.B, CPA, M.Fisc and MP of Pontiac


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