Scheme to trade CO2 emissions nothing more than an attack on consumers' pocketbooks

Ontario and Quebec businesses and consumers are already feeling the pain from rising fuel and energy prices.

Yet Premiers Jean Charest and Dalton McGuinty want to make things worse by unleashing a new variation on a carbon tax through a trading-emissions scheme called cap and trade.

The last thing Ontario and Quebec need is another tax, especially one that follows the new fad of protecting Mother Earth when, in practice, carbon taxes do anything but.

Canadians already pay substantial carbon taxes. As well, new carbon taxes already exist in most European countries and the experience there reveals just how damaging such programs can be and how little their effect is on greenhouse-gas emissions.

At a recent meeting in Quebec City, Ontario and Quebec cabinet ministers announced, among other things, a new plan for an interprovincial carbon cap-and-trade system to be in place by 2010.

McGuinty has no mandate for this new tax. While campaigning last June before last fall's provincial election, he unambiguously promised not to raise the taxes of Ontarians. Cap-and-trade does just that.

What would cap-and-trade mean in practice?

A cap-and-trade system sets a limit (or cap) for companies on the amount of carbon dioxide they can emit into the atmosphere. Companies that exceed their cap would be charged a hefty penalty (or tax). This creates a market because companies that emit carbon below their cap can trade or sell their excess capacity to companies that emit above their cap.

These new costs and penalties amount to nothing more than a new carbon tax, just dressed up differently. It is the type of program an Enron trader would have concocted.

It will still add a substantial new cost to businesses and service providers, which will be passed along to consumers - all aimed at the goal of reducing carbon dioxide emissions, as if CO2 is a pollutant, which it is not. CO2 is an inert gas that is vital to plant photosynthesis. People exhale it when they breathe.

Any talk about carbon taxes should start with the recognition that "carbon tax" is simply a fancy euphemism for a gas tax - save the fact it would apply to all fossil fuels, including home heating.

This is nothing new. The federal government, the provinces and even some cities already impose taxes of various forms on fuels. There are provincial gas taxes and federal gas taxes. And British Columbia, Quebec and Manitoba already have imposed extra taxes on carbon, draining cash from drivers, businesses and families.

Fuel already is highly taxed. In 2008-09 Ontario is projected to collect $4.2 billion in gas taxes and licence fees. This is an increase over last year when it collected $4.1 billion.

Last year, only 53 per cent of this revenue was spent on roads, bridges and highways. This year, the spending is projected to fall to 48 per cent. Way back in 2006-07, 67 per cent of provincial gas tax revenues went into roadways. These taxes aren't even being used for their designed purpose, adding weight to the concern that a new carbon tax amounts to a tax grab.

The total amount of fuel taxes to be collected by the federal and provincial governments in 2008-09 for gas and diesel alone is projected to be $13.9 billion.

In Ontario last year, the average pump price for gas was $1.11 per litre - 31 per cent of that price is tax. Ontarians pay 14.7 cents per litre in provincial tax and 10 cents per litre in federal tax.

To add insult to injury, the GST is added to that. If anything, these taxes should be lowered. At minimum, taxpayers deserve to have talk of yet another hit in the pocketbook clearly revoked. This is no small carbon tax.

Put simply, a gas tax is a carbon tax, a fact that Charest and McGuinty seem to have forgotten.

The European Union has in place a cap-and-trade system and some countries apply extra carbon taxes on top of this. Consequences have included massive cost increases and job losses with little or no reduction in carbon emissions.

In fact, carbon dioxide emissions increased in Europe by 5 per cent between 2000 and 2005, while manufacturing jobs fell by 12 per cent in the Netherlands and 8.4 per cent in France during that same period.

Consider Kollo Holding, which produces silicon carbide at a factory in the Netherlands. Managers at the factory say their plant is an ecological standout. They use waste gases to generate energy and have installed the latest pollution-control equipment.

But Europe's emissions program has driven electricity prices so high that the facility routinely shuts down for part of the day to save money on power, which, contrary to environmental goals, reduces energy efficiency.

Although demand for its products is strong, the plant has laid off 40 of its 130 employees and trimmed production. Two customers have turned to cheaper imports from China, which is not covered by Europe's costly regulations.

They aren't the only ones suffering. French cement workers fear they're going to lose jobs to Morocco, which doesn't have to meet the European guidelines. And German homeowners pay 25 per cent more for electricity than they did before the caps.

The ill-designed European cap-and-trade scheme has caused increased costs and job losses, has not produced emission reductions and has suffered from massive fraud.

Even with a well-constructed trading scheme, one of the main effects would be to transfer emissions from firms operating within the scheme to those that are not. To the extent that such firms are not energy-efficient, the net impact of trading-emissions schemes can be to increase global emissions.

Winston Churchill said: "We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle."

Struggling Ontario businesses and consumers should counsel the premier to stand by his election promises and drop the carbon tax. Otherwise, the premier will be dumping taxpayers into the Churchillian bucket.



Kevin Gaudet is Ontario director of the Canadian Taxpayers Federation.