A new report from the Fraser Institute suggests that carbon taxes around the world fail to benefit the environment or taxpayers.
According to the report Carbon Pricing in High-Income Organisation for Economic Co-operation and Development (OECD) Countries, the biggest reason why carbon taxes are not efficient globally is because many countries simply use carbon taxes to raise revenue.
“On average, 74% of carbon tax revenues in high-income OECD countries go directly into general revenues for governments with no specific use, 12% are earmarked for environmental spending and only 14% are returned to taxpayers,” the report states.
Of the 14 highly-developed countries with a carbon tax, nine of those countries simply pocket the carbon tax revenue without any commitments. Only Japan commits 100% of all carbon tax revenues to environmental programs.
The Fraser Institute says that in order for carbon taxes to be economically feasible countries need to reduce other taxes on producers by an equivalent amount. Most countries, including Canada, have not done this — making a carbon tax as financially harmful as any other tax.
“To mitigate the effect, revenue raised by carbon pricing policies can be recycled back into the economy through reductions in other taxes, thus creating offsetting reductions in distortions elsewhere in the system,” writes the report.
“Research generally shows that using carbon tax revenues to cut capital taxes—corporate taxes or personal income rates on interest, dividends, or capital gains—produces the largest economic efficiency benefits, roughly offsetting the economic cost of the carbon tax.”
Rather than mitigate the financial impact of the carbon tax, the Trudeau government has continuously increased the carbon tax. The carbon tax is scheduled to increase from $30 per tonne today to $50 by 2022.
The Trudeau government has recently said it will push forward with a second carbon tax in the form of the Clean Fuel Standards as soon as possible.
The Clean Fuel Standards are a regulatory regime on energy producers that is estimated to cost between $150 and $180 per tonne of carbon emissions. The Canadian Energy Research Institute estimates that the new tax may cost the average household $1,395 per year.
According to government timelines, the second carbon tax is expected to be introduced to Parliament this year, with the tax beginning late 2021.