Ontario is unique in the politics of carbon pricing in Canada: a carbon pricing champion transformed into a leading opponent. Some write off this reversal as a political deus ex machina — an unpredictable (and almost unbelievable) series of political events culminating in the election of populist Doug Ford as the Progressive Conservative premier in June 2018. A more detailed look, however, shows that there are bigger lessons to be learned from the Ontario experience about conservative populism and carbon pricing politics.
Similar populist arguments about the consumer costs of carbon pricing are resonating in other provinces (including “yellow vest” protests in Alberta modelled on anti-gasoline-tax demonstrations in France). Understanding how the populist critique of carbon pricing was effective in Ontario and developing options to better prevent such an attack from succeeding elsewhere are important.
Prior research points to promising strategies for countering populist attacks on carbon pricing, attacks that have focused on the threat of rising household costs for “working families.” Just across the border, for example, a coalition of 10 Northeastern states managed to make utilities pay for their emissions for the first time ever by neutralizing this consumer pricing issue. Designers of the Northeast’s Regional Greenhouse Gas Initiative (RGGI) succeeded politically by reframing emissions rights as part of the publicly owned “atmospheric commons,” and dedicating nearly all revenue from the auction of those rights to tangible public benefits that are widely distributed among residents. In particular, a majority of RGGI’s revenue went to consumer benefits: programs to improve energy efficiency or renewable energy options for residential buildings.
Other US carbon pricing programs, such as California’s, have stressed public health benefits: investing in programs to reduce co-pollutants associated with greenhouse gases and to provide better environmental quality in disadvantaged communities. In both cases, these tangible public benefits have been critical to the political durability of the policies in heading off or weakening attacks based on consumer prices that have defeated carbon pricing proposals at the federal level in the US. A similar dynamic has also played out in Canada with the now-popular British Columbia carbon tax, which returns most revenue directly to residents of the province.
One irony of the Ontario story is that the province stressed some of the same public benefits in its climate change policies before launching its carbon price. The province’s 2003 coal phase-out, which eliminated all coal-fired electricity production by 2014, had major climate change implications but was promoted primarily on the basis of public health gains from reducing other air pollutants associated with coal-fired power. A related and more controversial policy, the feed-in tariffs that provided higher fixed subsidies to new sources of renewable energy, were also promoted substantially on non-climate grounds, emphasizing job creation and economic development. Meanwhile, opponents blamed the feed-in tariffs in particular for increasing energy prices as well as for the placement of large wind farms in unwilling rural communities.
Although the province formally authorized participation in an emissions cap-and-trade program across the economy, in partnership with Quebec and California in 2009, implementation was delayed due to controversy over energy prices, leading to Liberal Party losses in the 2011 election. Only when the Liberals regained a clear majority in 2014 were they able to renew their commitment to a broad carbon pricing program, under the leadership of the new premier, Kathleen Wynne. With a new leadership team experienced in carbon pricing, the government announced its plans to implement carbon cap-and-trade and became a leader in promoting climate policy action at the provincial level across Canada.
The resulting cap-and-trade program was fairly ambitious, affecting more than 80 percent of emissions in the province and setting a 37 percent reduction goal by 2030. It also required emitters to buy a majority of emissions allowances from the government, creating a projected pool of more than $8 billion in revenue to spend on projects to reduce emissions over its first five years of existence. After enacting its own carbon price in 2016, Ontario was an important advocate for the 2016 Pan-Canadian Framework on Clean Growth and Climate Change to protect existing provincial policies. The federal framework included a backstop that would impose carbon pricing on provinces with inadequate climate policies — ironically, that category now includes Ontario.
The Ontario approach had two features that made it more vulnerable to the populist consumer pricing critique. First, the government talked primarily about economic development and reductions in greenhouse gases as the priorities for spending the cap-and-trade revenue. It said much less about consumer or public health benefits. In this vein, the initial five-year spending plan for carbon revenue dedicated only about one-third of its funds to programs to reduce consumer energy costs. These consumer programs also started relatively late and were criticized for subsidizing expensive, luxury electric vehicles (think Tesla) rather than lower-cost options.
Second, the government also chose to emphasize how many programs the carbon price would fund, without really explaining how carbon pricing was supposed to work. This lack of transparency about the policy design — including about the goal of increasing the relative cost of higher-carbon energy sources to discourage their use — may also have made the policy more vulnerable to misrepresentations by the opposition.
From the outset, the Conservatives seized on the message that the program placed an unfair burden on working Ontarians. Former PC leader Patrick Brown, a more moderate conservative, condemned the use of carbon revenue for new government programs, citing his preference for a revenue-neutral federal carbon tax with a full refund to all citizens. Although Doug Ford amplified the message when he became leader just before the 2018 election, the seeds of the consumer price attack on the policy were already sown.
Indeed, although it is uncertain how much the carbon price issue helped elect Ford in 2018, it is clear that the policy was a perfect foil for his populist “buck-a-beer” rhetoric. As promised, Ford repealed the program in one of his first acts as premier, replacing it with a far less ambitious program, leading to the federal decision to impose the backstop carbon tax on the province in 2019. Although we cannot know if an alternative strategy could have prevented the policy’s repeal, it is clear that the Liberals created an opening for a populist critique of their policy similar to the one anticipated by RGGI’s designers in 2008.
The Ontario story thus serves as a cautionary tale about the threat of populist economic arguments against carbon pricing in a variety of political contexts.
Even when economists conclude that a policy will have a small effect on consumers, as was the case in Ontario, the political dynamics of any increase in energy costs are quite challenging. For this reason, experience in Ontario and elsewhere suggests that it is critical to use some of that revenue to help the public cope with higher energy prices, and to communicate those public benefits effectively. This idea underlies the growing momentum for so-called carbon dividend policies, such as the new federal carbon tax, where the government returns carbon revenue directly to citizens on an equal per capita or per family basis. Although these policies appear to offer more tangible benefits to citizens, their political viability remains unproven beyond the successful experience in British Columbia. So the upcoming federal election will be a critical larger test of this variation on RGGI’s idea of providing public benefits for consumers from carbon pricing.
This article is part of the The evolution of carbon pricing in the provinces special feature.
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