Former Bank of Canada and Bank of England governor, and current Liberal Party leadership candidate, Mark Carney looks on before delivering remarks at the still-under-construction Gordie Howe International Bridge in Windsor, Ont., on Feb. 5.Carlos Osorio/Reuters
Mark Carney rolled out his free-lunch policy last week. The federal Liberal leadership candidate was not talking about feeding hungry schoolchildren. Rather, he was spelling out his carbon-pricing policy, one that would make “big polluters pay.”
The federal carbon fuel charge has been too divisive, Mr. Carney contends, and therefore needs to be scrapped. In its place, he would increase the amounts that large industrial emitters pay under the existing cap-and-trade system.
There is some elegance in the policy that Mr. Carney proposes (if one takes the most elegant solution of all, an economy-wide carbon tax, off the table). Large industrial operations that fail to meet targets for reducing greenhouse gases would, as they currently must, buy credits. Some part of the proceeds from those credit purchases would go into a new fund that would then be disbursed to individuals buying things such as heat pumps to reduce household emissions. The individual taxpayer would not be on the hook.
The much maligned fuel charge (a.k.a. the carbon tax) would cut emissions more cheaply than any other policy, since it allows businesses and individuals to choose how to reduce their carbon footprint. For some, it might mean less driving. For others, an electric vehicle. For others, a heat pump. And, for some, simply paying the fuel charge. Any other policy comes with less choice and more cost.
But it is clear that political support for the carbon fuel charge has evaporated, with not only the Conservatives but also now Mr. Carney and leadership rival Chrystia Freeland all saying they would scrap the policy.
It bears repeating that Conservative Leader Pierre Poilievre has not said what he would do after killing the carbon fuel charge, including whether he would also eliminate the (much less controversial) policy of industrial carbon pricing.
Given the political toxicity of the carbon fuel charge, Mr. Carney’s plan for a replacement makes sense. What makes no sense at all is his assertion that it will not cost individual Canadians, a mistake that repeats the Liberals’ initial strategic blunder in 2019 of pretending that the transition away from fossil fuels would be pain-free for Canadian households.
Then, the Liberals portrayed the rebates sent to households as enough to offset, or even exceed, the costs of the fuel charge. That math only held true if the broader economic costs of the carbon transition were ignored. Of course, they cannot be. In reality, the entire point of carbon pricing is to bring into the economy the (considerable) cost of emissions that had been dumped for free into the atmosphere. And someone has to bear that cost.
Mr. Carney is now replicating that mistake, telling reporters last week that “we will get the big polluters to pay for it.” That is certainly true in the first instance: large industrial firms would be the ones to pay the price for failing to hit emission-reduction targets.
But then what happens? Firms will, if they can, pass on those costs to their customers, including individual Canadians. To the extent the firms are successful, consumers will pay. If they are not, the costs do not simply vanish – they show up in the form of lower profits or lower wages. Someone pays, someone always pays.
Mr. Carney is proposing another carbon policy that would make it much easier for Canadian companies to pass through costs to Canadians – a carbon border adjustment mechanism, as it is formally known. It is effectively a carbon tariff that would add to the cost of goods imported from jurisdictions that were not matching Canada’s climate targets, in order to level the field for domestic firms. But raising the cost of imported goods would make it easier for domestic producers to pass on their carbon costs.
Lastly, a policy that funnels cash to consumers for green upgrades would undoubtedly be more politically palatable than the carbon fuel charge, but much less efficient. Simply put, there will be more costs to pass through to consumers.
Mr. Carney most assuredly knows all this, which makes his position (echoing that of NDP Leader Jagmeet Singh) all the more disappointing. The former central banker is presenting himself as an adult voice, one that will forswear slogans and simplistic policies.
If he wants to sell Canadians on that brand, he can start with dumping the simplistic rhetoric that only “big polluters” have to worry about the costs of climate change.