The Economic Disadvantage of Carbon Taxes


The United States is Canada’s biggest trading partner and also its biggest competitor for investment and jobs. Donald Trump’s election as President of the United States significantly altered the landscape for Canada’s provinces in order to keep our economy competitive and protect jobs.

Shortly after his presidential inauguration, Trump announced that he would be eliminating Barack Obama’s Climate Action Plan, and would embrace the development of oil, natural gas, and coal. During his campaign, he also promised to repeal many of Barack Obama's environmental regulations, make significant cuts to the Environmental Protection Agency (EPA), and withdraw the US from the Paris Agreement.

As such, it is fair to assume President Trump won't be embracing the notion of carbon taxes, either in the form of the "classic" carbon tax, or the "cap and trade" carbon tax.

If Canada and its provinces implement carbon taxes, this would result in higher energy prices in Canada, at the same time that the United States would be attempting to lower their energy costs. This could put various Canadian provinces at a significant economic disadvantage.

The morning after Trump’s victory, Saskatchewan Premier Brad Wall echoed these concerns when he stated: “The election result means we will not be seeing a carbon tax in the US any time soon... It makes no sense for our federal government to push ahead with imposing a national carbon tax, when our biggest trading partner — and our biggest competitor for investment and jobs — is not going to have one."

Mark Jaccard, Professor of sustainable energy in the School of Resource and Environmental Management at Simon Fraser University, a leading expert on the subject, observed that “we should not let the carbon-pricing lobby trick us into believing that we absolutely have to have a price on carbon… we don’t. We did not use this policy approach to reduce sulfur dioxide, or nitrous oxide, or lead, or particulates, or mercury, or ozone-depleting chemicals.”

Wherever carbon taxes have been introduced around the world, the one thing all these experiences have in common is that they grow government revenues, do nothing to lower greenhouse gas emissions or impact climate change, all while causing economic hardship.

The CATO Institute’s Working Paper No. 33 The Case Against the Carbon Tax reported on a review of jurisdictions around the world and academic research on carbon taxes and they concluded a “consensus” in the literature that "carbon taxes cause more economic damage than generic taxes on labor or capital, so that in general even a revenue neutral carbon tax swap will probably reduce conventional GDP growth.”