FIRST READING: Trudeau’s curious decision to detonate his own carbon tax

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Ottawa’s ‘carve-out’ almost tailor-made to discredit the two main reasons for having a carbon tax in the first place

Published Nov 08, 2023  •  Last updated 3 hours ago  •  7 minute read

Prime Minister Justin Trudeau rises during Question Period, Tuesday, November 7, 2023 in Ottawa. Photo by THE CANADIAN PRESS/Adrian Wyld

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It was only supposed to be one little “carve-out” intended to keep Atlantic Canada happy and give the Liberals a fighting chance of winning the next election.

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But instead, the rather naked politicking of the home heating oil exemption has set events in motion that threaten to spin apart one of the Trudeau government’s most signature policies.

The NDP — which was previously one of the Liberals’ most enthusiastic allies on carbon pricing — has sided with the Conservatives to expand the exemption (although the motion was defeated by the Liberals and Bloc Québécois). And at a meeting of all 13 premiers in Vancouver, every single first minister backed some kind of federal climbdown on the tax.

“The carbon tax is not a silver bullet when it comes to climate change,” said Wab Kinew, the recently sworn-in NDP premier of Manitoba. He added that the feds should “help people who are struggling right now because of inflation,” and even appeared to demand “evidence and analysis” that the policy was bringing down emissions.

The Liberals had always sold carbon pricing on its universality. The stated purpose of the tax is to disincentivize carbon emissions by making them more expensive, so Canadians only pay based on how many greenhouse gases they’re throwing into the atmosphere.

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The current regime, for instance, charges $65 per tonne of carbon dioxide, which works out to 14 cents for every litre of gasoline, 10 cents for every litre of propane and $145 for every tonne of high-grade coal.

“The government’s role is to create incentives and to make regulations that send clear, long-term signals to the markets to foster the reduction of emissions in a flexible and economical manner,” said Environment Minister Steven Guilbeault in one of his many lengthy defences of the policy delivered last June in the House of Commons.

But the heating oil carve-out threw a wrench into the whole scheme by exempting one of the dirtiest fuels on the list — while continuing to tax millions of Canadian homeowners who had cleaner burning furnaces.

This is why home heating oil was charged such a high carbon tax in the first place; 20 cents a litre, as compared to just 10 cents per litre for natural gas.

This week, Housing Minister Sean Fraser justified the carve-out by saying that since Canadian households can simply “get rid of” home heating oil in favour of cheaper, cleaner alternatives, it didn’t make sense to tax them for it.

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“The same policy wouldn’t make sense to apply to different sources of fuel,” he told CBC.

The political justifications for the exemption were obvious. Atlantic Canada only became subject to federal carbon pricing on July 1. Amid the noticeable spike in fuel prices that followed, Liberal support plummeted across the region — leading to a chorus of Liberal MPs warning that if something wasn’t done the party would soon be unelectable.

These MPs — which included P.E.I.’s Sean Casey and Bobby Morrissey — had suggested softening the pain of the tax via more universal measures such as increasing the carbon tax rebate for rural residents.

But Ottawa’s decision to zero in on home heating oil ensured a policy that would disproportionately benefit Atlantic Canadians while leaving most of the rest of the country paying full freight. A mere three per cent of Canadians use heating oil, and almost all of those users live east of the Quebec border. In Nova Scotia, nearly a third of homes use oil.

The carve-out threw an even bigger wrench into the Liberals’ longstanding argument that any disparities caused by the tax could be fixed via targeted rebates.

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The idea is that every Canadian would pay the same price at the pump, but if you were lower-income or lived in a rural area without public transportation you’d get a disproportionate share of those taxes refunded.

This was the case that Finance Minister Chrystia Freeland was attempting to make during a July visit to P.E.I.

“I understand that there are communities in P.E.I. and across Atlantic Canada where you need to drive, so I understand that our policies need to respect that, and I really believe they do,” she said.

The average Prince Edward Islanders stands to receive a quarterly rebate of $120, with more depending on how many children are in their household.

Even the Parliamentary Budget Office — which has criticized the Liberals for undercounting the cost of the tax — has calculated that virtually every Atlantic Canadian is going to receive a net gain from rebates in the program’s first years.

It may seem pointless to collect a tax simply to refund it back to taxpayers, but the effect is still to disincentivize fossil fuels.

If you’re the average Nova Scotian, you now get a $124 “Climate action incentive payment” every three months. If you then decide to trade your Cadillac Escalade for a Honda Civic (or, trade your oil furnace for a natural gas one) you’ll still get the $124 — but you’ll have more in your household budget as a result of paying less carbon tax.

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Atlantic Canada was far from the first region of Canada to call for federal succor on the tax. The prairie provinces have repeatedly pressed for repeal or relief, usually around April 1 — the annual date when the carbon tax automatically clicks into a higher bracket.

And each time, the federal response was that whatever pain the tax was levying, the solution was rebates, instead of repeal. “In the case of Saskatchewan, approximately 90 per cent of direct proceeds from the fuel charge are returned to residents through climate action incentive payments,” went one typical response from Liberal MP Francesco Sorbara in April 2021.

With the carve-out, the Liberals aren’t just giving a free pass to an unusually dirty fossil fuel, but they’re doing so in a way that will disproportionately help the wealthy. As University of Calgary economist Kent Fellows wrote in a recent analysis, the carve-out will benefit “households with large houses MORE than low income households living in higher density homes.”

If the Liberals have suddenly betrayed years of arguments as to why the carbon tax could never be exempted or slowed, it might have been the simple fact that any long-term survival of the program is already on shaky ground.

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The most recent polls show that 55 per cent of Canadians want the carbon tax repealed or reduced, and political opinion polls since the summer are pointing towards a crushing lead for the Conservatives — a party that has made abolition of the tax one of its central issues.

Despite its pleasing rhyme, the phrase “axe the tax” appears almost never in more than 150 years of House of Commons transcripts. But in just the last three months, the Conservatives have said it 106 times.

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