Carbon taxes on motor fuels 2021-05-21 John Hollins

An inadequate 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.

To examine this point, 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 has increased in an irregular manner by an average 1% a year since the BC carbon tax was introduced on Canada Day 2008.

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, ignoring other factors 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.

Here is an example of another factor from a letter by Pete McMartin in the Vancouver Sun, 2015 December 5:

“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.”

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.

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. (Population of BC has also increased by about 15/YEAR.) 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—its declared foundation in the Pan-Canadian Framework—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.)

Corporate carbon tax

It has been argued that carbon taxes in business settings are more likely to work because successful corporations would cope with a carbon tax in the same way that they build existing taxes into their decision-making. But taxes are only one factor of many. Again, this is one-dimensional thinking in a multi-dimensional space. For example, businesses, particularly large ones, expect paybacks of five years or less when investing in physical plant. Businesses may prefer take-overs that increase market power or stock buy-backs that increase share prices.

To be effective in business, a carbon tax would have to be much higher than that proposed. There is no real data to determine a level of corporate tax that would be effective to reduce emissions. It will not be known until it has been tried and succeeded or failed. Competent actions are needed now, not in a decade.

Conclusion

Carbon taxes on motor fuels and in business settings are a weak choice.

John G. Hollins
Kimberlin Associates, Ottawa

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