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Politics

Third Swing At Canada Carbon Tax Analysis By PBO

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Let’s Hope for Solid Hit from the PBO’s Third Swing at Carbon Tax Analysis

The “corrected” analysis by the Parliamentary Budget Office of the carbon tax and rebates is due soon. One hopes it will get more things right in this third crack at evaluating the government of Canada’s assurance that most Canadians will receive enough from the carbon tax rebates to cover their cost of paying the tax.

Reporting in 2022 and in an update last year, the PBO analysis confirmed the government assertion so long as induced economic effects from the carbon levy are not included. However, once the economic damage from the levy is included, the PBO concluded that the rebates fall short of keeping family budgets whole. 

The PBO’s conclusion was seized on by Conservative politicians and others to justify calls to revoke the carbon tax. Now, more knives have come out. The NDP says it would scrap the tax on households and put the burden on large emitters, but it does not yet explain how it would square that with the current big-emitter carbon tax. And BC, where carbon taxing began in Canada, has said it would drop the tax if Ottawa removed the legal requirement.

Much is at stake with this third PBO swing.

After the second report, the PBO admitted that its analysis had included, in addition to the carbon tax on households, the tax on large emitters as well. The economic impacts had been taken from work passed over to the PBO by Environment and Climate Change Canada (ECCC), which included the effects of the tax as applied to both industrial and household payers. The budget officer said the error was small and had little consequence for the analysis and promised a corrected version this fall. 

The Canadian Climate Institute estimates that 20-48 percent of the emissions reduction by 2030 will come from the levy on large emitters compared to 8-14 percent from households. Given the scale of the large emitters tax, it is likely that it has significant economic effects on any forecast. Fixing this should not, however, be the most consequential revision to its analysis. 

The PBO’s first two efforts had an analytical asymmetry. It measured the economic cost originating in the tax, exaggerated as it turned out, but did not attempt to capture the economic benefits (not to mention any health gains) from the effects of the household carbon levy in mitigating climate change. Put differently, their work was, in effect, based upon the faulty premise that climate change brings no economic damage. The massive and growing costs of cleaning up fire and flood damage and adapting to the many other consequences of global warming bear evidence of such costs. The PBO could and should do its own analysis of those climate change costs and, hence, the benefits of mitigation. Or it could more easily tap into the substantial body of available literature.

Lowering Canada’s Gross Domestic Product

In Damage Control, the Canadian Climate Institute estimated climate change would lower the Gross Domestic Product by $35 billion from what it would otherwise have been in 2030; the impact would rise to $80 to $103 billion by 2055. Through cutting emissions, the household carbon tax will reduce this cost. International literature is rich, and the PBO could review it for applicability to Canada. As but one example, Howard and Sterner’s (2017) meta-analysis on the impacts of climate change concluded most studies underestimated them. Their preferred estimate points to a GDP hit of between 7 and 8 percent of GDP if there are no catastrophic damages and 9 to 10 percent if there are. Conceptual thinking is also advancing. Consideration is being given to there being “tipping points” where a certain degree of climate change may have much more non-linear dramatic economic effects. Some, like Stern and Stigliz, even question the worth of comparing an economic outlook with mitigation action against a status quo baseline as the PBO has done. They argue that without mitigation, there may not be a sustainable economic outcome. 

Finally, those still inclined to think that a corrected Fall 2024 PBO report will provide ammunition to “axe the tax” need to ask themselves two questions.

First, is there value in the emissions reduction resulting from the household carbon tax? The Canadian Climate Institute concludes that the 8-14 percent contribution to emissions reduction by 2030 will grow in later years. Even with the tax and all the other policies announced to date, there is a 42-megatonne gap in Canada’s 2030 emissions reduction target. More than 200 Canadian economists signed an open letter asserting that “carbon pricing is the lowest cost approach because it gives each person and business the flexibility to choose the best way to reduce their carbon footprints. Other methods, such as direct regulations, tend to be more intrusive and inflexible, and cost more.” If not the household carbon tax, then what else?  

Let us hope the PBO’s third carbon tax report gives evidence to form a more balanced perspective. For The Silo, Don Drummond/C.D. Howe Institute.

Don Drummond is the Stauffer-Dunning Fellow in Global Public Policy and Adjunct Professor at the School of Policy Studies at Queen’s University and a Fellow-In-Residence at the C.D. Howe Institute.

Earth

Philippines Strengthens Coastal Ecosystems- What Canada Can Learn

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  • Following Indonesia, the Philippines joins the World Economic Forum’s Blue Carbon Action Partnership to safeguard crucial coastline ecosystems in South-East Asia.
  • Mangroves and other littoral biospheres provide a critical buffer against climate change globally, but environmental degradation is putting them under threat.
  • Momentum builds at COP28 for the conservation and restoration of these critical blue carbon ecosystems, for the benefit of people, nature and the climate.
  • Learn more about the World Economic Forum’s work at COP28 here.

Dubai, United Arab Emirates, December 2023 – The Government of the Philippines’ Department of Environment and Natural Resources announced yesterday at COP28 that it is joining the World Economic Forum’s Blue Carbon Action Partnership to accelerate the restoration and conservation of coastal ecosystems.

South-East Asia is home to almost one-third of mangroves globally, with nearly 20% of the world’s mangroves in Indonesia alone.

Blue carbon ecosystems such as mangroves, seagrasses and salt marshes store up to five times more carbon per acre than tropical rainforests and have been receiving greater attention in recent years. Yet, these ecosystems are under threat of destruction. These important carbon sinks also provide support for livelihoods, food security, shoreline protection and habitat for numerous.

Eelgrass (seagrass) distribution on Canada’s sea coastlines are under threat.

Source: Environment and Climate Change Canada (2020).

The importance of eelgrass to ecosystems was shown after a widespread wasting disease outbreak along the Atlantic coast of North America in the 1930s resulted in a 90% loss of eelgrass. It is estimated that populations of migratory Brant geese along the Atlantic coast, which rely heavily on eelgrass outside the breeding season, declined by as much as 90%. Declines of clams, lobsters, crabs, scallops, cod and flounder were also reported following the loss of eelgrass.

Eelgrass beds are highly productive and several studies have indicated that eelgrass beds contribute to the sequestration of “blue carbon” in marine sediments, providing a valuable ecosystem service in coastal areas.

“Coastal ecosystems such as mangroves are critical to life in the ocean and to those who live alongside it. Increasingly, we are also recognizing their vital role to buffer us against the worst effects of the climate crisis,” said Alfredo Giron, Acting Head of the Ocean Action Agenda and Friends of Ocean Action at the World Economic Forum. “When blue carbon benefits are recognized and valued by governments and businesses, who commit and invest in the restoration of mangrove, seagrass and salt marsh ecosystems around the world, everybody wins – people, nature, climate and ultimately, the planet.”

The newly launched National Blue Carbon Action Partnership in the Philippines will convene, coordinate and support implementation to scale high-quality blue carbon action, representing nearly 700 billion metric tons of carbon sequestered in mangroves and seagrasses in the country.

“The Philippines, endowed with rich biodiversity and extensive coastlines, is home to vast blue carbon ecosystems. We look forward to working with the Blue Carbon Action Partnership to facilitate the inclusive, whole-of-society approach to developing a shared ambition for blue carbon, community resilience, inclusive development and unlocking the Philippines’ potential to provide nature-based climate solutions for the rest of the world whilst supporting our programs for protected areas and preparing the country for participating in the new blue economy,” said Antonia Loyzaga, Secretary of the Department of Environment and Natural Resources of the Philippines.

The Philippines partnership is the second to be launched after an agreement last year with the Government of Indonesia, which has also strengthened its partnership agreement with the World Economic Forum at COP28 and is preparing to launch its National Blue Carbon Action Partnership secretariat. Combined, the Philippines and Indonesia house 4 trillion tons of carbon in their blue carbon ecosystems, which is the carbon equivalent of over 11 trillion of barrels of oil consumed.

There is increasing demand for blue carbon ecosystem restoration and conservation to attain the multifaceted benefits these ecosystems provide, including food security, support for livelihoods, coastal protection and carbon storage. Working with its government partners, the Blue Carbon Action Partnership can support connecting finance with countries that have established policies to receive blue carbon ecosystem investment.

“The ocean is our largest buffer in tackling the climate crisis and it plays an essential role in climate change mitigation, resilience and adaptation as well as regulating the global weather system. It is encouraging to see the ocean gaining increasing prominence as a natural resource for accelerated climate action,” said Giron.