It might be better than cumbersome regulatory action to curb emissions
I’ve written in this space before about carbon taxes, as they become a common policy tool in more and more jurisdictions in Canada and elsewhere.
Since the federal government announced its plans in this area about a year and a half ago, the provinces that don’t already have “carbon pricing” regimes (as the euphemism would have it) have been mostly busy falling in line with the nationally-set price floor.
That floor will come into effect next year at the very modest level of $10 per tonne, but will increase each year thereafter until it hits $50 per tonne in 2023. Even at this level, it’s not likely to curb behaviour enough to have a dramatic impact on emissions, but it will contribute to our global green goals in its own way.
It is often assumed that a meaningful carbon tax will be bad news for the industry, but this does not have to be the case. In fact, a higher carbon tax could be good news for automakers and dealers, if it is coupled with a lighter reliance on industry-specific (and relatively costly and inefficient) regulation aimed at lowering emissions. Our industry has been a popular target for such regulations in recent years, to the significant cost of OEMs, dealers and consumers.
At its $50 per tonne level in 2023, the tax will add a little more than a dime to the price of a liter of gasoline. Even doubling the tax to $100 per tonne (a level which would start to take a serious bite out of emissions) would add less than a quarter to the price of a liter of gasoline.
Certainly this is enough for consumers to notice at the pump, but if the tax is properly designed those same consumers will see a corresponding jump in their paycheques. A carbon tax at that level will generate billions of dollars of revenue which provinces will be free to use as they see fit. Many will use it to substantially lower provincial income taxes.
It’s a brave politician that will impose a 10 or 20-cent hike in gasoline prices, but technology and the gradual implementation of the tax will soften the blow.
It is often assumed that a meaningful carbon tax will be bad news for the industry, but this does not have to be the case.
First, as we all know, gasoline prices are fairly volatile. Between 1997 and 2017, average prices increased from around 98 cents to $1.15 per liter (all prices adjusted for inflation), but within that two-decade period there was significant volatility.
When the price of oil skyrocketed in the middle part of the first decade of this century, gas prices also soared, hitting $2.00 in some cases. Surely, a 10-to-20 cent increase imposed over the next decade will be barely noticeable in the context of such volatility.
Also, new vehicles continue to get more and more mileage out of a tank, a technological process that will continue and perhaps even accelerate in the years to come.
Even as the national fleet continues to grow, we recently experienced a first in history: a decline in the amount of fuel consumed by Canadians.
This is not because people all of a sudden started driving less. It’s because years of fuel economy enhancements are finally starting to bend the curve of consumption even in the context of more cars driving more kilometers. This will take some of the edge off any pump price hikes in future due to a carbon levy.
And a carbon tax in the longer run could be good news for the industry. The levy is near-universally accepted by economists as the most efficient and market-oriented policy tool to reduce emissions, as opposed to regulations such as fuel economy rules and industry-specific pollution caps aimed at other sectors.
If governments come to realize this in the years to come as carbon taxes cover more and more economic activity, it is possible they will realize that increased carbon levies can be paired with reduced regulation, which has always been a very costly way to reduce emissions, in our own sector increasing the price of vehicles by substantial sums.
So don’t fear the carbon tax, but help to ensure it is implemented in as efficient a manner as possible.
Pressure provincial and federal political leaders to make any carbon tax truly revenue-neutral through dollar-for-dollar reductions in income taxes, and as it increases over time to pair it with a corresponding reduction in costly, inefficient industry-specific regulations.
