By William Crooks

Local Journalism Initiative

McGill Professor of Economics Christopher Ragan says the federal Carbon Tax is the least expensive method for incentivizing reduced carbon use and contributes minimally to inflation. His comments come amid a raging war of words on the topic between the federal Liberal government (pro) and the Conservative official opposition (con).

Prime Minister Justin Trudeau has said recently that all it would take is a “five-minute discussion” for him to convince Canadians of the tax’s merits, while Conservative Leader Pierre Poilievre has made “axe the tax,” and “spike the hike,” referring to its planned increase on April 1, central tenets of his platform.

Every jurisdiction in Canada since 2019 has had a price on carbon pollution, according to the government’s official website. The federal Carbon Tax and its related rebates are not in effect in Quebec, which has its own provincial cap and trade system in place.

“Quebec’ [carbon pricing] system is driving up the price of gas, natural gas and diesel,” Ragan said in a March 26 interview with The Record, “but there are no rebates.” There is an overall cap set for provincial emissions that declines three or four per cent per year, he continued, which has caused emissions to fall at about the same rate.

Quebec’s system involves tradeable allowances, allowing companies to “pollute for a price,” set at approximately $50 per tonne. The price has been rising over the past few years. Quebec and California’s carbon pricing systems are linked, allowing international trading between firms in the two locations.

At the individual level, all we see is that fossil fuels are a little more expensive, he said. This provides an incentive for people to change their behaviour over time. Every $10 per tonne in carbon pricing translates to about two cents extra per litre at the gas tank, he explained.

Both sides of the political debate “are saying what they want to say,” said Ragan. Those opposed will never discuss the rebates, and will focus on how it is making life unaffordable. Proponents will highlight the tax as a low-cost way to reduce emissions to help fight climate change. “There is truth, of course, in both sides,” he said.

Greenhouse gas emissions, he went on, are measured by calculating how much fossil fuel we use. They have fallen in Canada by about eight per cent since 2019. This, he insisted, is due to carbon pricing and other climate policies. “It does work,” he said, “just not suddenly and dramatically.”

Carbon pricing has a “miniscule” effect on inflation, according to Ragan. He cited a recent University of Calgary study that argued about five per cent of inflation over the past few years has been caused by carbon pricing. “Pretty close to nothing,” he said. The recent spike in inflation was due partly to the pandemic and the war in Ukraine, he said, and also happened in countries without carbon pricing.

The “logic” of carbon pricing is not to make people poor, which is why the rebates make sense. They return 90 per cent of individuals’ purchasing power, he said.

If you want to reduce carbon emissions, carbon pricing is the best among available alternatives, he insisted. “Intrusive regulations” and “very expensive subsidies” are worse options, a point on which he said every economist he knows would be in agreement.

“It may not make you feel good, but any other method, at the end of the day, will make you poorer,” he said. Ragan signed a March 26 open letter on carbon pricing along with many other Canadian economists that goes further into detail on his views. It can be found here: https://sites.google.com/view/open-letter-carbon-pricing