Carbon Tax Bruhaha

April 1st 2024, saw a schedule increase in Canada’s carbon tax, to $80 per tonne. This caused much grumbling and complaining, over what amounts to a price increase of $0.03/litre of gasoline. Interestingly, gas went up further later in April, when refineries switched to a summer blend of gasoline. That increase amounted to perhaps 5-10 c/litre (source), bigger than the carbon tax increase by factor 2 or 3 depending on where we land in that range. Lets look at the price of gas in more detail. Curiously we find that the government both subsidizes and taxes gasoline

I must admit that this blog has a bit of a green tint. Thus I must warn you my dear reader that as there is a link between interest in electric cars, and gas prices, I might be a wee biased in my writing (source).

Canada sold 42.5 billion litres of gasoline in 2022 (source), still quite a bit below pre-pandemic levels of almost 45 billion litres in 2016, perhaps that is because 10% of new cars sold in 2022 were either fully or partially electric (source). Each one of these litres produced 2.3 kG of CO2 when burned (source), hence, gasoline added about 98 MTonnes to Canada’s 708 MTonnes of CO2 emissions in 2022 (source), about 14% of the total.

If the goal of the carbon tax is “cost-recovery” we need to quantify the harm in monetary terms, of that tonne of CO2 emissions. The vast range of electric cars available nowadays should meet most peoples needs, therefore, in my mind, it makes sense to apply taxation both as a nudge to reduce harm from CO2 emissions, and to generate revenue to compensate those affected, for example, the residents of Lytton BC, which burned down during the summer of 2021.

So what is the “tab” here? Well, considerable it seems, wildfires cost Canada several billion dollars a year, lets say $5 B, about mid-way through the $1-9 B range quoted here. Flooding is another sizable problem, with costs ranging from $4-17B (source), again we pick the middle at $10 B. The other two “Natural disasters” mentioned (pandemics and earthquakes) in Canada’s natural risk profile (source), even I would be at a stretch to associate these costs towards climate change. Further, climate change is responsible for a portion of these expenses, but our “mid-value” of $15B.

These figures only include damage attributed to climate change, this does not include adaptation expenses, say homeowners having to install air-conditioning to tolerate higher summer temperatures. The Greener homes program, which did fund heat-pumps and other climate tech, for example had a $2.6B budget (source). Given the uncertainty surrounding this component, lets ignore it for now.

If we divide the “tab” with the amount of gasoline sold in Canada, we arrive at $0.35/l or $150/tonne CO2 eq. quite a bit more than the current carbon tax rate of $80/tonne CO2 eq. carbon tax.

Curiously enough, Canada actually subsidizes the fossil fuel industry by “at least $4.8B” a year (source). In terms of “cents-per-litre”, that amounts to a 11c/l fuel subsidy. In all fairness, that might be just a proportional slice of the $350B Canada spends on “corporate welfare” each year (source). Notably, that $4.8B does not include say, the $35B Canada has spent on just the Trans-Mountain-Pipeline-expansion (source), thus one might suggest that the $4.8B is somewhat conservative.

Raising taxes is always a challenge for politicians. Its been said that the public only likes to hear the word “tax” if it is followed by the word “cut”. Even so, policymakers do have an option to simply eliminate the $4.8B spent per year on the fossil fuel industry, no taxation required. This would bring fossil fuel pricing closer to the $15B damage bill Canadians must bear each year from climate change.