How a break at the pump is a reverse carbon tax – and could make climate change worse

In the wake of Russia’s invasion of Ukraine, the long-running dispute over how governments should spend our oil and gas taxes has become more complicated and, if possible, more heated.

As Canadians wait to hear Ottawa’s spending plans in today’s budget, opinions diverge around the world on whether countries should produce more oil and gas to help the economy. Europe – or save the world from climate change and leave fossil fuels in the ground.

At the federal and provincial levels, Canadian governments are trying to have it both ways.

The two new solitudes

And Canadians remain widely divided, “two new solitudes” according to one well-known economist, on whether producing more fossil fuels is all good or all bad. But that same economist, Christopher Ragan, says it doesn’t have to be.

The climate report out this week by the Intergovernmental Panel on Climate Change, however, suggests that the answer is unequivocal. With the world on a path to climate destruction, now is the time to halt all spending on new oil and gas facilities.

“Investing in new fossil fuel infrastructure is moral and economic folly,” UN Secretary-General António Guterres said when the report was released.

WATCH | Why climate change researchers say we need to slow down the use of fossil fuels:

UN report on the climate crisis paints a grim picture

The world is on track to exceed a critical climate threshold unless significant efforts are made to cut emissions and reduce reliance on fossil fuels, warns the latest UN climate change report. In the 2015 Paris climate agreement, countries agreed to limit global warming to 1.5°C. 3:36

Obviously, there are other views, and one was expressed this week in a rather different Deloitte Canada report titled Strategic transition: the future of oil and gas in a decarbonized world.

While the report sees this industry in Canada gradually moving towards reducing climate change, the path to that goal includes increased oil and gas production to fuel global demand – and help Europe push back the grip political and economic Moscow, Andrew Botterill, one of the authors of the report, said in a telephone interview.

“We have these sources, Europe wants them right now because of its energy crisis, but at the same time we are trying to reduce emissions and increase production,” Botterill said.

He thinks it’s right for governments to contribute to this, in part to help the industry deal with future uncertainty, but also to help Canadians struggling with higher prices.

“We would hate for individuals to have to worry [if they can] heat their home while continuing to shop,” Botterill said.

Subsidies for transit

Elsewhere, there has been widespread outrage, including in the main editorial of The Globe and Mail this week, over moves by provincial governments to subsidize gas prices. Like a pro-carbon tax — a kind of reverse carbon pricing — it takes your own tax money and gives it back to you if you spend more on fossil fuels.

For Canadians who have been flooded or burned, and those who take the IPCC report to heart, it is disheartening. Especially when economists know that there are many ways to help people suffering from high fuel prices and to help industry, without the subsidies being tied to worsening climate change.

“High gasoline and diesel prices hurt businesses and citizens who have to drive,” said Dan Woynillowicz, who runs Polaris Strategy and Insight, an independent firm working on energy and climate policy.

Artist’s rendering of a liquefied natural gas plant in Placentia Bay, Newfoundland. Liquefaction facilities and an export terminal could be used to ship LNG to European markets. (LNG Newfoundland and Labrador Limited)

He said those people might need help, but it might come in cash that people might decide to spend on fuel or whatever. He pointed to California where part of the grant came in the form of three months of free public transit.

Although there is no expectation that subsidies to buy gasoline will be included in the federal budget, there are still strong objections to federal taxpayers’ money being distributed to oil and gas companies that are currently experiencing a huge increase in their profits, partly due to the war. in Ukraine.

One of the issues the budget should address is the contribution to carbon capture and storage or CCS.

Cost of doing business

“When oil prices were low, industry couldn’t afford CCS,” Woynillowicz said. “Now when oil prices are high, they say there is no money to be made in CCS, as if they are entitled to a return on investment.

“CCS is the cost of doing business in a socially acceptable way – the return on investment is that you are allowed to continue producing oil and earning revenue from those barrels.”

It’s hard to imagine anyone describing Ragan, the economist and creator of “two new solitudes,” as part of what Alberta Premier Jason Kenney has called the “green left.”

Ragan was known as a hard-line pro-market economist at McGill University in Montreal long before heading the country’s Ecofiscal Commission and assuming the role of defend a national carbon tax as the friendliest way for Canada to fight climate change.

Expecting today’s federal budget and provincial government policies to continue to waver over whether taxpayers’ money should be spent on curbing the use of fossil fuels or helping the industry to produce more, Ragan said he understands why Canadians may be confused.

Defeating climate change is not easy

“I think most Canadians’ hearts are in the right place, they think climate change is a serious issue, they think climate change needs to be addressed,” said Ragan, now director of the School of Politics. Public Max Bell of McGill. “I don’t think many, many Canadians have understood that these changes are not going to be very easy.”

Like many others, Ragan deplores the idea of ​​using taxpayers’ money to subsidize the price of fuel at the pump, and he believes governments need to take risks by helping to spur investment in new, environmentally friendly technologies. of the climate.


Shell’s Quest carbon capture and storage facility in Fort Saskatchewan, Alberta. An economist told CBC that mass carbon storage would be a big, significant step forward for the environment and the economy. (Todd Korol/Reuters)

He said this includes carbon capture and storage because, if successful, mass carbon storage would be a big economic step towards reducing atmospheric carbon – especially in industries such as food manufacturing. steel and cement where getting rid of carbon as a by-product is difficult or prohibitively expensive. .

“I’m probably not in favor of incentives on this indefinitely, but I think providing serious investment tax credits for a while, to see how far we can expand this and make it economic, is probably a good investment,” Ragan said. .

Ragan is convinced that Canada’s job is to reduce the production of greenhouse gases at home even if it satisfies the world’s demand for its fossil fuels, fuels that the world would get elsewhere if Canada did not sell them.

“I think we have a federal government doing the right thing here, but they’re not doing a very good job of explaining it.”

It’s pretty clear that many on both sides of the Two New Solitudes would disagree.

Follow Don on Twitter @don_pittis