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Economy

If Canada Won’t Tax Gas to Cut Emissions, Who Will?

The politics are tough to escape.

Mark Carney.
Heatmap Illustration/Getty Images

Canada’s carbon tax was supposed to be different. Unlike the proposed cap-and-trade scheme in the United States or the European Union’s carbon trading system, Canada’s program was not a kitty for green energy subsidies. The tax would be split into two pieces: a charge on large industrial emitters, largely raised through provincial systems where more intensive emitters buy credits from those that emit less, and a tax on consumers that took the form of a charge on fuels, including gasoline. And the best part: The bulk of the revenue raised by the tax would be returned to provinces and individual taxpayers.

Five years after it was put in place, however, Canada’s new Liberal prime minister, Mark Carney, scrapped the consumer half of the tax as one of his first acts in office. In doing so, he was trying to cut off a potent line of attack from the opposition Conservative party, whose leader, Pierre Poilievre, has tried to center upcoming national elections on the issue. Polling from earlier this year showed that overall support had fallen from 56% in 2021 to 45% today, while Liberal support for the tax had fallen even further, from 83% to 70%.

This was despite reams of outside and official data showing that most Canadians benefited from the tax, at least in terms of (Canadian) dollars paid compared to those received in rebates. Per Canada’s Parliamentary Budget Officer, Ontario households in the median quintile (i.e. between the 40th and 60th percentile) came out $117 ahead on average this year. And although the tax did have a slight negative effect on economic growth of 0.6%, according to PBO estimates, that study didn’t take into account the value of lower greenhouse gas emissions.

If a carbon tax and dividend can’t work even in Canada, it appears to confirm a distressing truth for climate activists — that even if people are concerned about climate change, they don’t want to pay very much to fix it.

Popular discontent with the tax — especially among Conservative voters — picked up dramatically in 2022, alongside rising gas prices. The thinking goes, “if the price of gas goes up, it’s the carbon tax,” Kathryn Harrison, a professor of political science at the University of British Columbia, told me. But while it’s true that the carbon tax makes gas more expensive, the tax is a fixed charge, meaning that any big jump in gas prices cannot possibly be its fault. Then again, when gas prices are already high, anything extra can feel especially noxious.

“People hate the idea of a tax,” Harrison said. “When they know there’s a tax, they perceive the impact as much greater than it has been.”

There’s also a strong political element to how people feel about a carbon tax. Along with fellow researchers Matto Mildenberger, Erick Lachapelle, and Isabelle Stadelmann-Steffen, Harrison examined rebate programs in Switzerland and Canada for a 2022 paper published in Nature Climate Change, and found that the simple matter of dollars (or francs) and cents could not overcome the carbon tax’s well-established political identity. In Canada, Conservative voters tended to underestimate the rebate’s size more than Liberals did.

Carney’s shift

Carney is in some sense an odd figure to ditch carbon pricing. Before his leadership campaign, he was a prominent figure in climate finance, heading up climate transition investing at Brookfield Asset Management, a huge renewable investor and developer, and was the co-chair of the Glasgow Financial Alliance for Net Zero, a financial institution decarbonization group. Ideally Carney told a BBC interviewer at the 2021 COP26 Summit in Glasgow, “we would have a global carbon price.” And though that would have to vary depending on a company’s relative economic position, “everyone should try to have a price on carbon,” he said.

In canceling the tax on Friday, however, Carney said that it had become “too divisive” and was “not working,” echoing language from his leadership campaign.

The cancellation comes as the federal fuel charge was set to rise 3.3 cents per liter, from 14.3 cents to 17.6 cents. During his party leadership campaign, Carney proposed that the fuel charge be replaced with “a system of incentives to reward Canadians for making greener choices, such as purchasing an energy efficient appliance, electric vehicle, or improved home insulation.” Sound familiar?

So where does this leave carbon tax proponents? If one can’t survive in Canada, where can it?

Catherine Wolfram, an economist at MIT and former Biden Treasury official, is, like many economists, a supporter of carbon pricing. She told me that “too many people are dancing on the grave of carbon taxing writ large,” noting that the industrial side of Canada’s carbon tax is still active. And so If someone came to her for advice on a carbon tax, she would tell them to “start with something very far upstream. Start with industry. Don’t touch retail gasoline until more substitutes are available to consumers.”

She also pointed out that the industrial side of the tax was still alive in Canada, and Carney’s decarbonize your life-style proposal could address individual carbon emissions. But wouldn’t this just be the Inflation Reduction Act all over again, I asked her?

No, she said, because Canada still, for now at least, has a tax on industrial emitters.

“If we could get the U.S. to where Canada is now, I would be delighted,” she said.

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Q&A

How the Wind Industry Can Fight Back

A conversation with Chris Moyer of Echo Communications

The Q&A subject.
Heatmap Illustration

Today’s conversation is with Chris Moyer of Echo Communications, a D.C.-based communications firm that focuses on defending zero- and low-carbon energy and federal investments in climate action. Moyer, a veteran communications adviser who previously worked on Capitol Hill, has some hot takes as of late about how he believes industry and political leaders have in his view failed to properly rebut attacks on solar and wind energy, in addition to the Inflation Reduction Act. On Tuesday he sent an email blast out to his listserv – which I am on – that boldly declared: “The Wind Industry’s Strategy is Failing.”

Of course after getting that email, it shouldn’t surprise readers of The Fight to hear I had to understand what he meant by that, and share it with all of you. So here goes. The following conversation has been abridged and lightly edited for clarity.

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Hotspots

A New York Town Bans Both Renewable Energy And Data Centers

And more on this week’s most important conflicts around renewable energy.

The United States.
Heatmap Illustration/Getty Images

1. Chautauqua, New York – More rural New York towns are banning renewable energy.

  • Chautauqua, a vacation town in southern New York, has now reportedly issued a one-year moratorium on wind projects – though it’s not entirely obvious whether a wind project is in active development within its boundaries, and town officials have confessed none are being planned as of now.
  • Apparently, per local press, this temporary ban is tied to a broader effort to update the town’s overall land use plan to “manage renewable energy and other emerging high-impact uses” – and will lead to an ordinance that restricts data centers as well as solar and wind projects.
  • I anticipate this strategy where towns update land use plans to target data centers and renewables at the same time will be a lasting trend.

2. Virginia Beach, Virginia – Dominion Energy’s Coastal Virginia offshore wind project will learn its fate under the Trump administration by this fall, after a federal judge ruled that the Justice Department must come to a decision on how it’ll handle a court challenge against its permits by September.

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Spotlight

The Wind Projects Breaking the Wyoming GOP

It’s governor versus secretary of state, with the fate of the local clean energy industry hanging in the balance.

Wyoming Governor Mark Gordon.
Heatmap Illustration/Getty Images

I’m seeing signs that the fight over a hydrogen project in Wyoming is fracturing the state’s Republican political leadership over wind energy, threatening to trigger a war over the future of the sector in a historically friendly state for development.

At issue is the Pronghorn Clean Energy hydrogen project, proposed in the small town of Glenrock in rural Converse County, which would receive power from one wind farm nearby and another in neighboring Niobrara County. If completed, Pronghorn is expected to produce “green” hydrogen that would be transported to airports for commercial use in jet fuel. It is backed by a consortium of U.S. and international companies including Acconia and Nordex.

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