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Will a carbon price destroy the North?

One essential piece is missing from both the federal and provincial plans so far. Border Tax Adjustments are needed to keep Ontario business competitive.
David Robinson Economist, Laurentian University Director, Institute for Northern Ontario Research and Development.

In one of the most anthologized poems in the English language, William Butler Yeats asked:

“What rough beast, its hour come round at last. Slouches towards Bethlehem to be born?”

The hour of the carbon fee has certainly come. Both Ontario and Canada have committed to creating some kind of misshapen beast to fight climate change. The beast is certainly rough, as well: nobody really knows what it will look like when it grows up.

The province's carbon beast might bite Northerners harder than Southerners, for example. Many believe Northerners drive greater distances than people in the south. We have worse public transit. On average we are a bit poorer and older than southerners. And, baby, it’s cold up here, so we use more fuel just to stay alive. All this suggests that the average Northerner will pay a bigger share of income in carbon fees than the average southerner.

The research actually shows that carbon fees will reduce incomes in rural and small urban communities more than in large cities. The research also shows that the effect is tiny: the difference seems to be the kind of money you lose in your couch every year. Personally, I am disappointed by the research — I had hoped to argue for a special Northern Ontario Carbon Rebate.

Some politicians will try to make the case for a special Northern Carbon Allowance. B.C. has a rural rebate, but the real reason for it was to buy off the politically Conservative rural constituencies, not to correct any real injustice. We will probably get a rebate for Northern Ontario if Liberal seats are in danger.

The big question is "revenue recycling." If the government collects money, it has to go somewhere. In B.C. they give the carbon revenue back to the people. Ontario plans to spend its money on a whole zoo of projects to help people adapt to a low-carbon lifestyle.

Northern Ontarians would be much better off with the B.C. plan. With a higher percentage of older people and more relatively poor people, the B.C. plan would bring a small but worthwhile boost to the northern economy. In fact, the ideal scheme from the point of view of Northern Ontario would be something like the Greens’ carbon-fee-and-dividend that provides an equal check for all citizens (and less for their children). This approach to revenue recycling makes the carbon fee virtually painless. It could be $100 a tonne and we wouldn’t care.

Research shows that letting the minister of the environment, Glen R. Murray, decide how to spend the carbon fee revenues is a very bad idea. Glen simply can’t know the most effective investments to make and he sure doesn’t know what Northerners need. In a paper called “The Deadweight Loss of Christmas,” economist Joel Waldfogel showed buying presents for people we don’t know very, very well generally wastes about 30 per cent of the cash value. 

Waldfogel is a bit of a Grinch about Christmas, but his research applies just as well to Glen Murray playing Santa Claus with our money.

Besides, most of the projects Glen wants to do have real economic value: they can pay for themselves if they are set up the right way. If he is right that solar roofs and insulation will save money, simply lending money to people who can’t come up with the cash will get lots of solar roofs installed.

One essential piece is missing from both the federal and provincial plans so far. Border Tax Adjustments are needed to keep Ontario business competitive. Our forestry and mining sectors sell in international markets. They have to get any carbon fees back on products they export. That levels the playing field. We also have to charge a carbon fee on imports to protect our businesses from competition that doesn’t pay a carbon fee. Border tax adjustments are legal and by far the simplest way to deal with exports and imports. Glen’s plan tries to do the job with a harebrained collection of exemptions and delays that muddy the water more than they help.

The provincial plan truly is an ugly and expensive beast. There is still time to fix it.