When Mark Carney became the leader of the Liberal Party, one of his first actions was to cancel the Canadian Carbon Tax. The liberals won a narrow victory last April. Given that there were many more close constituency elections than usual, the removal of this tax probably gave the party that victory.
This tax was instituted in 2019 by the previous Liberal leader: Justin Trudeau. This plan was to tax carbon consumption at the consumer level: this included gasoline, heating, and electricity generation. The consumer paid this tax. It started at $10 per tonne of CO2 emissions, and it increased $10 per year. The goal was to convince Canadian consumers to look for ways to reduce their carbon footprint. The tax was highly regarded by economists and climate activists.
For low-income Canadians, this tax would have been a serious hardship. These people would have found paying another $1000 a year making their difficult life more difficult. To compensate, the Trudeau Liberals proposed an offsetting subsidy. This subsidy covered the cost of the extra tax and was prorated to income. So someone making $15,000 a year got the full subsidy; a $25,000 earner got less, the $35,000 got very little. In essence, the tax was revenue neutral for lower-income Canadians, so they did not suffer financially.
While the middle class and higher saw a little bite to their disposable income, they were also more able to reduce their carbon taxes, like making fewer trips with their car, fewer airplane trips, or buying a smaller house.
Lower income Canadians had fewer carbon-saving choices. But they could lower the thermostat by 0.5°C and shut off a few lights. Their subsidy would not be reduced if they did these climate-saving actions.
Did the tax reduce Canadians’ carbon footprint? I did not see any reports that Canadians’ spending habits were changing their carbon-buying habits. But remember it started low enough that it fell into “inelastic pricing,” meaning most people would not change their fossil fuel habits immediately. But as the tax increased, inelastic pricing would change to elastic pricing, and citizens would look for ways to save money. In other words, making some climate-changing decisions means more disposable income — for things that are less harmful.
Many Canadians liked this carbon tax. They understood how it should work.
Many of these Canadians were already making consumer choices to reduce their carbon footprint. So they have no problem with letting the polluter pay more tax.
The Opponents of the Carbon Tax
For whatever reason, other Canadians believe either climate change and its effects are a hoax or there is nothing they can do to stop it. To these people, the carbon tax and its subsidy is mostly a bureaucratic invention designed to take fun out of life.
Many people in this group do “excessive travelling.” They tend to regard their trips to Las Vegas and Caribbean resorts as an entitlement because they earned enough money to take these trips. They fail to understand much of humanity and much of history never had this privilege to travel like this.
And some of that group think nothing of starting up a car to travel two kilometers to get their favorite coffee from their favorite coffee house. They do not consider the actual expense of driving their car to the coffee shop is more than the cost of coffee. Yet if the coffee house doubles its price, these same people would be the first to complain to the government about inflation.
I could provide other examples, but let’s just say the Carbon Tax was starting to cut into a consumerist lifestyle. A $80,000 annual income household was probably paying $3,000 a year in carbon taxes. This was taking away an out-of-Canada trip or two. These so-hard-done-by Canadians turned to the political party promising relief from their plight: the Conservatives.
And the Conservative Party was also quick to remind not-so-rich Canadians of the carbon taxes showing up on utility bills, yet conveniently forget the subsidy offsets the lower income Canadians were getting. Or maybe the Party cries of “socialism” were warping the thinking of enough low-income Canadians to vote in a conservative way.
In 2021, the Conservative Party made opposing this tax a major part of their campaign platform. The party did not win the election, but they prevented the Liberals from having a majority.
The Conservatives were going to use it again in the 2025 election. Prime Minister Carney cut that leg off their platform table. Had he not done that, it would have been the Conservatives with the narrow victory. Whether by Party A or Party B, the Carbon Tax was destined to be cancelled.
When the Carbon Tax was cancelled, the disposable income of lower-income Canadians did not change: lower taxes yes, but no more subsidy. And the wealthy had more money to spend. Go figure!
The Housing Crisis
Politicians ride a wave of popularity, get a few things done well and a few more things not-so-well. Then the politicians fade, politically speaking. Prime Minister Justin Trudeau had a run of almost 10 years. He probably could have got another term — and many Canadians still liked his Carbon Tax.
But Canada was undergoing a housing crisis. Rents went up. Housing prices went up. People were forced into uncomfortable living arrangements. Many fans of the Carbon Tax were also on the brunt of the housing crisis. So which issue wins when influencing their vote?
I believe the housing crisis was the issue that brought down Mr. Trudeau’s popularity to the point of not being able to win the next election. The Carbon Tax might still be in place today if this housing crisis was managed well.
We could blame Mr. Trudeau and his Liberal Party for not seeing the housing crisis in advance — and not taking the right steps to prevent it.
But western democracies are not great at long-term planning. There is a strong element of “kicking the can down the road” until it gets too big to kick anymore. The environmental can and the housing can are the same signs of a reactive, not proactive, system.
Conclusion
The Canadian Carbon Tax was a brilliant environmental/economic/social program. It was easy to understand. It did not put the lower income people in a worse financial state. It was introduced at a low tax rate, which then ramped up. No one was directly forced into making any climate change decisions, but making climate change decisions would be financially rewarded. Classical economics.
Methinks Mark Carney knew how good this program was going to work. But he was forced into a political decision, mostly because of the housing crisis, not the merits of the Carbon Tax.
In essence, the cancelling of the Carbon Tax is another example that western democracy is not able to handle environmental issues that well.
Environmentalists have two choices. They can continue to believe that their activism will eventually convince our elected leaders to create legislation and programs that truly move us in a wise environmental direction. Or they can start building a new democracy that will be more responsive to the environment.
I believe my alternative democracy — Tiered Democratic Governance (TDG) — is that more responsive democracy. It would have built a plan like the Carbon Tax much earlier than 2019. It would not have been cancelled just when results of less consumption were starting to show.
If western democracy cannot find the environmental solutions we are looking for, this new TDG democracy will.
And actually, environmentalists can do both. The TDG will take only 10 hours a month from its volunteers. These early TDG builders can still put the rest of their spare time and energy into their regular environmental activism. Maybe the current democracy will address their concerns.
Published on Medium 2025
