Carbon taxes on motor fuels

An irrelevant tool for a major issue

I have argued for several years that carbon taxes applied to consumer motor fuels will not work because in a generally wealthy country:

• much more than price is in play, including:

  • the convenience of being mobile at any and all times, and

  • the ability to carry items, door to door;

  • plus the selection of an automobile is often a signal of prestige.

Pete McMartin made the first two points in the vernacular in a letter to the Vancouver Sun on December 15, 2015:

People let’s get real. Let’s get real about why people drive their cars. People drive their cars because cars are fantastic! They’re personal mobility devices; you get privacy; you can carry stuff.

To examine this argument, I have taken data from two reliable sources to produce a graph for British Columbia:

1. Statistics Canada for the annual sale of gasoline for motor vehicles in BC; and

2. the Government of BC for rates of carbon taxes.

The volume of motor gasoline purchased in BC increased between 2008 and 2019 in an irregular manner, by an average almost 1% a year since the BC carbon tax was introduced in 2008. The population of BC also increased by about 1% a year, so the per capita consumption did not change. That is not the measure used in the Paris Agreement, which is simply the percentage change by jurisdiction from 2005. If per capita consumption were the criterion, Canada would probably compare even less well.

British Columbia was a pioneer in introducing a carbon tax on motor fuels, on Canada Day 2008. This initiative has often been lauded, but the results reported have often been misrepresented and misused in motivated reasoning by advocates. The results presented in this graph are simple and straightforward, based on two entirely reliable sources.

The pandemic in 2020 affected not only GDP, but also the driving behaviour of citizens. The volume of gasoline purchased in 2020 dropped by 10% from its peak in 2019, by 3% from 2008. That illuminates the observation that there are factors over and above price that determine the volume of gasoline purchased.¹

The case for a carbon tax is a limited and simplistic economic argument: change the price of an item and the volume of sales will move in the opposite direction, in the simplest and often assumed case in the same proportion. It fails to recognise that price is not the only factor in play in the consumer motor fuel market. This is one-dimensional thinking in a multi-dimensional space. Broader economic thinking uses the concept of price elasticity, which recognises that factors other than price are in play.

Conclusion: no evident effect

The only plausible conclusion that can be drawn from this provincial experiment using reliable data for consumption reported for a decade is that the carbon tax on motor fuels has had no evident effect at all on the volume of motor fuels burned in British Columbia. It has not reduced emissions of carbon dioxide. Price on its own has not been an effective tool in that society.

In an interview on CBC Ottawa Morning in 2018, Ontario Minister Rod Philips acknowledged that for a carbon tax to be effective in our rich society, it would have to be much, much higher than the BC carbon tax. He suggested $150/tonne. Canada’s federal government has got to more or less the same place in 2021. But we simply do not know whether or not it is in the right ballpark because no government in a parliamentary democracy has yet put such a price on carbon.

The Government of Canada is taking its time to get to a higher tax, despite its rhetoric that global heating is an immediate, existential issue. It pretends to have the willpower, but it has yet to demonstrate the waypower to deal competently with this issue, the ability to get the job done in a timely manner.

Competence

Competent action to actually reduce emissions of greenhouse gases is desperately needed now. The selection of “Pricing carbon pollution” as the first pillar of the Pan-Canadian Framework is totally inadequate. It cannot deliver.

One might think that a carbon tax—any carbon tax—could do no harm in addressing global heating. But the fixation of the federal government on carbon taxes leads some citizens to think that a carbon tax is all that is needed. It is not.

The right tools

The federal government has created a portfolio of plans, but it has yet to map out physically coherent pathways that identify what technologies are needed to meet its emissions targets and how they would be deployed. In fact, it should do that before setting targets that it could expect to competently hit.

The federal government also needs to monitor progress, which it is not doing, and adjust its policies and programs in response to what actually happens. To be able to take this competent approach to deliver real results, the federal government must expand its tool box so that it can understand and explain to citizens the rationale for its policies and programs, and report regularly on progress. Better tools are essential. (See separate note on competence.)

John G. Hollins
Kimberlin Associates, Ottawa

with advice from Robert Hoffman
Principal, Founder
whatIf? Technologies Inc.

JGH11309

Postscript

It is possible but unlikely that carbon taxes would work in corporate settings, where financial considerations are predominant, and taxes are a regular part of doing business. But businesses, especially large ones, expect paybacks of five years or less when investing in physical plant. Businesses prefer take-overs that increase market power or stock buy-backs that increase share prices. To be effective for such corporations, the carbon tax would have to be high, but we do not know how high. There is no data to test this argument. Again, the results of such an experiment cannot be known for a decade or more, when competent action is needed now, in 2021.