Alberta carbon tax could send industry, jobs to competing jurisdictions

A new report released Wednesday by the Fraser Institute says Alberta’s carbon tax is unlikely to meaningfully reduce global carbon emissions but could send industry and jobs to competing jurisdictions.

“Even if you agree that pricing carbon is the most effective way to reduce emissions, Alberta’s carbon tax is flawed and will likely fail to deliver the promised results,” said Robert P. Murphy, Fraser Institute senior fellow and author of Carbon Pricing in Alberta.

Robert Murphy
Robert Murphy

“In its current form, Alberta’s Climate Leadership Plan will reduce the province’s economic growth at a far higher cost than necessary to achieve a very modest impact on global climate change. As such, the best option is arguably to eliminate carbon pricing at the provincial level altogether. However, especially in the context of a federal “backstop” carbon price, at the very least the Alberta government should revise its approach to carbon pricing to eliminate the most economically destructive elements of the CLP.

“Specifically, any carbon tax should be truly revenue-neutral (that is, with no additional spending on programs, even if designated as “green”), with the receipts ideally used to reduce the marginal rates on other taxes. Furthermore, a carbon price ostensibly corrects for any “market failure” in business and household decisions, and therefore it should not be supplemented with additional targets for emissions or renewable energy.”

The report said the Alberta government in 2015 introduced its Climate Leadership Plan, which includes an expected tax on carbon of $30/tonne next year rising to $50/tonne in 2022.

It said a local carbon tax—such as one at the provincial level—increases the likelihood of “leakage,” wherein industry taxed in one jurisdiction moves to another tax-free jurisdiction and continues emitting there, taking jobs and investment with it. In this scenario, Albertans suffer the economic pain of higher energy prices, but global emissions stay the same, or even increase as a result of higher transportation emissions.

“The market must be allowed to operate as a force on emissions, if a carbon tax is going to work theoretically, but as it stands now, the Alberta carbon tax is primarily a revenue tool for government that will likely fail to achieve its stated goals,” said Murphy.

– Mario Toneguzzi


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