On April 1, Canadian Prime Minister Justin Trudeau increased Canada’s carbon tax from $20 to $30 per ton of carbon dioxide equivalent (CO2e). This rate increase was implemented amidst the global pandemic COVID-19 in which many countries, including Canada, are struggling to contain the virus and limit the damage to the economy. While economists agree that a well-designed carbon pricing policy is an effective way to address climate change, raising a carbon price at a critical time of public health and economic crises is unnecessary.
In 2019, the Canadian Federal Government implemented a nationwide carbon pricing policy that started at $20 per ton and will increase to $50 a ton by 2022. This carbon pricing mechanism is applicable to provinces that don’t have their own carbon pricing policies, such as Manitoba and Ontario. Other provinces that have their own carbon pricing mechanisms are implementing the policy according to the jurisdiction’s own schedule. For example, British Columbia’s carbon tax rate was set to reach $50 per ton in 2021. B.C. Premier John Horgan delayed the province’s scheduled carbon tax increase from $40 to $45 last week as he rolled out the provincial government’s pandemic aid package.
Earlier last week, nearly a million people filed for unemployment insurance in Canada. Businesses were asked to shut down and people were told to stay home to help contain the spread of the coronavirus. The Canadian Parliament has authorized a $107 billion aid package to rescue the economy and the federal government has rolled out government-backed business loans.
Partially due to the global pandemic and sharp economic downturn, oil prices hit 20-year lows which dropped from about $60 a barrel in the beginning of this year to around $20 a barrel. Meanwhile, the C$10 increase in carbon price translates into approximately $3 increase in the price of per barrel of oil.
The increase in the carbon price is relatively small compared to the magnitude of decrease in oil prices, so raising the carbon price now may not have a significant impact on the economy. On one hand, the potential price increase for consumers may be relatively small. On the other hand, this additional cost may make it harder for businesses to retain employees or simply inspire political backlash.
It’s no doubt that Trudeau is right that climate change remains a challenge even during a pandemic. But it is not a top priority at this moment. Of course this is not to say that climate change should be ignored. Rather, at this moment, a government can prioritize solving the public health crisis and providing immediate relief to affected businesses and households. Once the public health crisis is resolved and the economy is back on track to recovery, raising a carbon tax rate in Canada would seem to be a wiser choice. The long-term existence and maintenance of a carbon tax will have a much larger impact than any rate changes made in the next couple of months.
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