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By Elmira Aliakbari
and Ashley Stedman
The Fraser Institute
The federal government announced recently that it will provide up to $12 million in subsidies to Canadian supermarket giant Loblaws Inc. for new energy-efficient refrigerators. Unfortunately, the subsidy proves again that the nation’s climate plan is severely flawed.
According to the government’s news release, the subsidy will help Loblaws reduce its total annual emissions by approximately 23 per cent.
Here’s why this taxpayer-funded subsidy is problematic.
The centrepiece of the federal government’s climate plan is a carbon tax, which most economists (including us) agree – when done right – can reduce emissions while limiting costs.
The core idea behind a carbon tax is that individuals, both in their professional and personal lives, will change behaviour when faced with higher prices for carbon-intensive products. The tax on carbon is meant to induce changes to consumption and production decisions.
To limit the economic costs and distortions of a carbon tax, economists generally agree that other policies need to be introduced simultaneously. For example, revenue collected from a carbon tax should not be used to support alternatives (including other forms of energy production or, in this case, other refrigerators).
The idea behind a carbon tax is to rely on the pricing of carbon to induce investments by individuals and businesses in alternatives. But rather than relying on carbon pricing to make things happen, the federal government is picking winners (Loblaws) and losers, as well as specific alternatives – by replacing old refrigerators and freezers.
If a functioning and effective carbon tax were in place, Loblaws would decide to avoid the tax by investing in energy-efficient technologies without government subsidies. This profitable company would find new ways to reduce its carbon footprint.
Instead, the federal government chose to override the price signals and announce a multimillion-dollar subsidy.
And this isn’t an isolated incident. The Loblaws subsidy comes from the $500 million Low Carbon Economy Challenge, a federal program that offers funding to provinces, territories, municipalities, non-profits, businesses and Indigenous groups for “innovative projects” that reduce carbon emissions.
Unfortunately, the federal government’s initiative violates almost all the principles of an efficient carbon tax.
All of the revenue collected from a carbon tax should be used to reduce other taxes that impose larger costs on the economy. Many economists believe that reducing personal and business income taxes is the ideal use of revenue from a carbon tax.
And yet only about 90 per cent of new revenue from the federal carbon tax will be returned to taxpayers in lump-sum rebates. And personal income tax rates have increased for professionals, entrepreneurs and business owners.
Existing regulations imposed on carbon-based activities should be eliminated since they impose enormous costs on the economy.
The idea behind the carbon tax is to rely on the higher cost of carbon emissions to change behaviour rather than imposing rules. Yet the federal government continues to add regulations on carbon activities.
So the carbon tax will be added on top of existing regulations, directly contradicting the basic elements of an efficient carbon tax.
Properly designed and implemented, a carbon tax can work to improve the economy and better regulate greenhouse gas emissions.
The decision to provide $12 million to Loblaws for new refrigerators demonstrates that the federal government has little interest in implementing an effective and efficient carbon tax.
Elmira Aliakbari is associate director of natural resource studies and Ashley Stedman is a senior policy analyst at the Fraser Institute.
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