Trudeau Carbon Tax in Crosshairs as Report Sparks Fresh Debate

(Bloomberg) -- Prime Minister Justin Trudeau’s national carbon price faced a fresh round of fierce political bickering after a spending watchdog stood by his conclusion that most households will be worse off due to the tax. 

Parliamentary Budget Officer Yves Giroux released an updated report on Thursday to fix a mistake in his initial review of the tax published in March 2023. The new document holds to the basic findings of the original report — prompting both Trudeau’s Liberals and Pierre Poilievre’s Conservatives to claim it as a political win.

The Liberals point out that Giroux confirmed that most Canadians receive more in rebates than they pay in the tax. The Conservatives, meanwhile, highlight the finding that most households will fare worse over time as the tax drags on economic growth.

“That report confirmed everything I’ve been saying about this horrible tax,” Poilievre told reporters in Toronto, noting that the US has no equivalent. “Our trucks, our businesses, our workers, our money will pour over the border, leaving behind a nuclear winter for our economy.”

Environment Minister Steven Guilbeault argued Thursday’s report was an “important correction” from Giroux. “It clears the air on Pierre Poilievre’s big lie and shows that carbon pricing is the most cost-effective way to fight climate change,” he said in a statement.

Giroux’s analysis has become a major thorn in Trudeau’s side, hurting his ability to emphasize the rebates as a benefit to most Canadians. The Liberals argue the report misses the point because it doesn’t compare the carbon tax to alternative measures to reduce emissions or consider the economic impacts of unfettered climate change.

The heated debate reflects the likelihood that the carbon tax will be a central issue in the next election, which could come any time within the next year. The Conservatives are about 20 points ahead in the polls. The left-wing New Democratic Party has also begun to distance themselves from the tax, arguing it puts too much burden on consumers instead of industries.

Earlier this year, Giroux admitted his office made an error in its initial version of the report. Instead of analyzing only the carbon tax on consumer fuels, the report also included the effect of the industrial carbon tax — a different policy that applies to large factories, resource projects and other major industrial emitters.

The new version of the report shows a slightly lower negative effect on households after omitting the effect of the industrial carbon tax. However, “the updated estimates continue to show that the average household across most income quintiles will face a net cost when both fiscal and economic impacts of the federal fuel charge are considered,” it said.

The report acknowledges it does not consider alternate scenarios and does not make any conclusions about the policy merits of a carbon tax, saying that doing so is outside the mandate of the parliamentary budget officer.

Although Poilievre has put opposition to the consumer carbon tax at the forefront of his election message, it’s less clear what he would do about the industrial pricing system. Many companies have already invested based on the long-term expectation of an industrial carbon price. Others may be waiting for the results of an election.

The federal government has required provinces to have an industrial carbon price in place for several years. Some provinces — including Alberta, the heart of the country’s oil sands — developed their own systems much earlier, but others only brought in policies in response to the federal requirement.

At his news conference in Toronto, Poilievre indicated the industrial system is less of a concern to him.

Big industries are “under a different policy that is pretty much run by the provinces,” Poilievre said. “The federal government is not administering that policy in almost any province.”

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