The Carbon ‘Sin Tax’

Solar power is the last energy resource that isn’t owned yet–nobody taxes the sun yet.” Bonnie Raitt

The conventional wisdom about so-called ‘sin taxes’ is that governments increase them to collect cash and discourage ‘sinning’, for example, alcohol and cigarettes. The logic of taxing carbon as a means of raising revenue and creating a disincentive to burn fuel is popular with many governments. 

But in the last election the United Conservative Party (UCP) campaigned against the tax with the argument that it was a ‘job killer’.  So once elected, with a flourish, they killed the Alberta carbon tax.  That triggered the federal carbon tax that applies to provinces without a tax.  

Well, that led the Alberta government to sue the feds, alleging the federal tax infringed upon provincial powers. That case, along with a couple of lawsuits from other provinces, is now in front of the Supreme Court. (the Court is in hiatus during the pandemic).

For consumers, the federal carbon tax on gasoline is nearly 7 cents per litre. The natural gas cost for home heating is almost 6 cents per cubic metre. The bulk of the tax on Albertans will be returned directly to eligible individuals and families via a cheque from the federal government.  That works out to roughly $900 for a family of four that earns less than $100,000 annually.

For about 100 large emitting industrial plants there is an Alberta tax of $30/t of emissions.  The tax will raise around $400 million. A considerable chunk of this revenue is earmarked for oilsands innovation and emissions technology investments.  

The Saudi – Russian price war brought about a gut punch to the energy business in North America.  And the pandemic dramatically reduced global energy demand.  Those factors, along with Alberta’s already weakened economy, came together to make mincemeat of Alberta’s fiscal plan.  

Global Oil Price Crash amid Pandemic and Price War

Now Alberta’s budget is headed toward a $20 billion deficit this year.  The UCP’s first instinct was to balance the budget through service reductions. But cuts alone won’t solve Alberta’s red ink problem.  It’s time to look at drumming up some revenue. 

From a policy perspective Severely Normal Albertans might see the irony in the current UCP thinking:

  • They campaigned against the unpopular tax but then presented modeling that demonstrated that the tax wasn’t the advertised job killing monster after all.
  • The Alberta government levies other “sin taxes” using the logic that higher taxes discourage consumption but reject the idea that a carbon tax would impact consumer behaviour.
  • The UCP launched a Fair Deal Panel to examine ways to strengthen provincial powers and get a better deal in the federation. But they set up a situation where the federal government imposes a new tax on Albertans.
  • Alberta wants the support of the rest of Canada for the oil industry; but alienates some of the public by opposing a key measure that many Canadians believe is necessary to combat climate change.

The federal carbon tax might raise a billion dollars this year. And about $2 billion or so when the heavy emitters tax goes up in the next couple of years.  Surely times are desperate enough for Alberta to repatriate the carbon tax and use it to help patch the hole in our budget.