The Agenda with Steve Paikin (Audio) - What Went Wrong with the Carbon Tax in Canada?

Episode Date: June 24, 2025

Preston Manning. Bob Rae. Jean Charest. Paul Martin. Former NDP premier of BC, Michael Harcourt. What do they all have in common? Well, they were all part of the now defunct Ecofiscal Commission, which advocated for a carbon price in Canada. Chris Ragan was the chair of that commission. He is also an associate Professor and the founding director of McGill University's Max Bell School of Public Policy. He joins us from beautiful Gimli, Manitoba to look back on the long and strange journey of carbon pricing in this country and what went wrong. See omnystudio.com/listener for privacy information.

Here is an odd grouping. Former Reform Party leader Preston Manning, former NDP Premiers Bob Rae and Mike Harcourt, former Quebec Liberal Premier and Federal Tory leader Jean Charest, former Liberal Prime Minister Paul Martin. What do they all have in common? Well, they were all part of the now defunct Eco-Fiscal Commission, which advocated for a carbon price in Canada. Chris Reagan was the chair of that commission. He's also an associate professor and founding director of McGill University's Max Bell School of Public Policy. He joins us now on the line from Gimli, Manitoba to look back on the long and strange journey

of carbon pricing in this country and I guess we should say where it all went wrong. Hello Chris Reagan, welcome back to the agenda. How are you? I'm just fine. Thank you for having me Steve and before I say anything more, congratulations on a fabulous 19 years. This is a terrific show and it wouldn't be the same without you. Well kind of you to say but we're going to talk carbon pricing now so let's move on. Before you helped create the Ecofiscal Commission in 2014 you went through not a policy discussion phase but what you called a policy depression phase. What was that all about? Well I was lucky enough to have this great job of visiting outside economists at the Department of Finance

in Ottawa. It's called the Clifford Clark visiting economist and I was there 2009 and half of 2010 and one of the things that I was involved in when I was there was evaluating the emerging climate policy plan that the federal government was then working on and the federal government was working on a national cap and trade system and it was being developed mostly within the Environment Canada and so at Finance Canada, you know, I was sort of put in charge of sort of making contact with Environment Canada, finding out what the plan was and evaluating it and one of the things we learned and it was a really important thing is that the national cap and trade system that was being developed at the

time was based on fairly heroic principles, I will say, and for several reasons we thought that this was going to be a plan that it would be effective at reducing emissions, but it would actually be much more costly than it needed to be. So through a series of meetings, this plan ended up being scuttled. And at the time, I thought, okay, this is good. My naive belief was great. This, this high cost policy is now has now been terminated before it was even implemented. And now we can actually design a much better carbon pricing system. Well, that was my naive belief. What the government actually did was they started

by doing nothing, and then they started thinking about sector by sector regulations, which would be even higher cost. And that's when I went through what I like to call my policy depression phase. And what that looked like was me staring out of my 20th floor window asking, you know, what do you have to do to get good carbon policy or climate policy around here?

And that's when I kind of thought, well, this has become a political football. And the key objection to climate policy appeared to be the belief that this would be bad for the economy. And so my idea was if you had a group of economists who were sort of unimpeachable policy savvy economists that, um, that were pitching a policy that would be good for the environment. And if you did it right, good for the economy, then hopefully people like Jim Flaherty and John Baird and, and Stephen Harper wouldn't be able to eject and that was what turned into ultimately a few years later, the eco-fiscal commission. people like Jim Flaherty and John Baird and Stephen Harper wouldn't be able to eject. And that was what turned into, ultimately, a few years later, the Eco-Fiscal Commission.

Well, in fact, in 2014, that commission did get created. And a year later, Justin Trudeau won the prime ministership, promising to bring in a price on carbon. And I wonder whether you felt like taking a victory lap at that time. Well, we didn't want to take a victory lap at 2015 because it took a few years, but you know we were involved behind the scenes in discussing with the new liberal government about what their policy might look like. We were also involved, I mean we were talking to any government around the country who wanted

to talk about climate policy. We certainly spoke to the Ontario government of Kathleen Wynne at the time. We were speaking to the Alberta government of Rachel Notley. We were speaking to other governments as well. And the policies that got implemented in Alberta and then subsequently by the federal government, we thought were pretty good policies. You know, they were basically three parts to their climate policies. Number one, there was a carbon price on, you know, about 80 percent or a little bit above 80 percent of emissions in the jurisdiction. There was a rebate system that made sure that that carbon pricing wasn't going to actually drive people into poverty at all.

It wasn't going to reduce their purchasing power. And the third part, which was the much less appreciated part, but maybe even more important, was that there was an industrial carbon pricing part. The Alberta policy looked like that. The federal policy that got implemented by the Trudeau government looked like that. And so by the time the federal policy was introduced in 2019,

I suppose, we kind of felt like things were looking good. Should pop any champagne corks? I can't remember. I do like champagne periodically. I don't remember whether we drank on that particular day. Gotcha. Well, we did have you on this program in April of 2015. So this is more than a decade ago.

And we did talk about all of this stuff. So let's go down memory lane and take a little snippet of you back then and then we shall come back and chat again. Sheldon, if you would. Oh boy. Chris, how do you talk to the person who wrote that letter to the Globe and Mail and convince them this is not just another tax by a different name? Well, I think it's a great question and it's a great challenge. But I don't think we have to convince people of one thing is that most people actually

want to make progress on this issue. That's exactly what your survey suggested. But I don't think they have to convince people of one thing, is that most people actually want to make progress on this issue. That's exactly what your survey suggested. But I don't think they have a clear view forward. They're not quite sure how to do this. And I think there ends up being a lot of finger pointing. Is that, you know, we don't mind it if you tax those people, or you don't mind if you tax those businesses. I think we have to understand that we are all in this together. As consumers and as producers, we are all living in a way that, you know, produces pollution.

And we should just think about those costs. I guess the first obvious question is, have you had laser surgery since then? No. No, but I stopped wearing my glasses during COVID. And I think maybe my eyes are getting better. So, okay, very good. Second question is, if you could zip back to 2015 and talk to that Chris Reagan of a decade ago and give him a single piece of advice that would be worth knowing a decade later, what would you tell him? Well, it's interesting that that clip, I don't disagree with anything that I just said in that clip. I think the problem was in some sense elsewhere. I mean, I think it is still true that most Canadians care about climate

change and most Canadians want their governments to do something on climate change. Now, I think in the very recent, very recent months, other things have presented themselves as big issues. So I think Canada's access to global markets and our challenges on our prosperity is taking the top couple of issues in priorities and climate change is a little bit lower down. I think that's for sure happened. But when it comes to climate, I think Canadians still care about it. But what happened is I think

that the carbon price became a serious political football. And I didn't think it had to. And we can talk about why it did become a political football. Yeah, do that if you would. Sure. Pick up the story there. Why do you think that happened? So I think when the carbon price... Remember that the provinces acted first. I mean, B.C. had a carbon price in pre- pre 2008. Alberta had one by 2015.

I mean, the Rachel Motley one, which was a much bigger carbon price, if you like, than the one that preceded her. Ontario had it briefly, and then that was repealed by the Doug Ford government. We have cap and trade here. That's right. That's right. Quebec has a cap and trade system that is still in place that nobody talks about, right?

It is a political non-issue in currently my home province. But I think what happened federally is that I would say three things came together. Number one was that there was a political opposition. You remember the McLean's cover story called The Resistance, which was small C or large C conservative political opponents to carbon pricing. Jason Kennedy, Doug Ford, Scott Moe, yeah there was a bunch of them. And Reshear. Yeah. And in fact Pierre Poliev was a very very effective opponent. He's a very effective communicator And so that resistance, you know developed

Develop themselves, I suppose and they developed a voice and they were very effective at doing so that's one thing Now I actually think that many times when those opponents were speaking about carbon pricing, I think they were actually misrepresenting what carbon pricing was about. And almost never did they talk about the rebates. So they talked about the carbon tax, but they never talked about the rebates. And I think it's really sort of intellectually unfair to talk about one side and not both sides. So that was one thing. The second thing that happened and it helped those opponents was the inflation

that happened starting in 2021, 2022, 2023, which was caused really by supply chain disruptions caused by COVID. It was added to significantly by the Russian invasion of Ukraine. And this inflation had almost nothing, exactly nothing but almost nothing to do with the carbon price Countries that had no carbon price went through a very very similar inflation experience But it was very easy for those opponents of carbon pricing to say well hold on Carbon pricing is about driving up the price of some things Higher prices means inflation. We're witnessing higher inflation. Therefore, carbon pricing is to blame for the high inflation.

That's a very appealing, simple argument, but it's wrong. Empirically, it's been shown that it was much less than 1 percentage point of the inflation that we saw over that time. Something like 0.15 of one percentage point was due to the carbon price. So it was almost nothing, but not quite nothing. But the third thing that happened is that in the face of that opposition and the blame,

the connection between carbon pricing and affordability and inflation was that the federal government, I think, did a very poor job in explaining carbon pricing. And it's not an easy thing to explain. They couldn't really explain or they didn't take the time to explain why carbon pricing was better than alternative approaches. They certainly were unable or unwilling to explain the role of the rebates. So the rebates ended up being very confusing to many people. A lot of people just didn't realize there were rebates.

Some people that realized that there were rebates thought that it was kind of crazy because here's the government taxing with one hand and giving a rebate with the other. So that seemed to be incoherent. And I think the federal government just did a terrible job in communicating what this was all about. So those three things came together and, you know, they didn't have to come together, but they that's the way the world turned out. Those three things came together and we ended up with carbon pricing being seen by the liberal government and especially the new Liberal government under Mark Carney as a liability And so that was his first action as prime minister was to get rid of that Retail carbon price well let me pick up on the third item of your list there

And that is to say did did you have a moment? When Justin Trudeau was the prime minister or did you ever approach the environment minister or any other cabinet ministers in the previous liberal government and say to them you guys are blowing this we are losing the messaging war you guys only talk about carbon taxes and not carbon rebates etc etc did you wave a red flag at their face at any point so I had conversations and I'm sure other people on the Ecofiscal Commission did as well. I had conversations with the minister's office at Environment Canada and with the PMO and I didn't need to tell them that they were blowing it on a communications basis. I mean those conversations were

typically instigated by them and they knew that they needed communications help. They were wondering how they could make particular points. And so, you know, I did what I could. And, you know, I, with Ecofiscal, we wrote all kinds of op-eds in all kinds of, in all kinds of formats, I suppose, and newspapers or blog sites across the country, making the point, not just about rebates across the country, making the point not just about rebates and communications, but just talking a lot about carbon pricing and why it makes sense. And of course, we also took on the letter.

This was in April of last year. Am I getting my dates right? Yes, I think April of last year, when the carbon price was scheduled to increase another $15, and it had become then a huge political football. That was a few months after the home heating oil exemption had happened, which I thought was just a terrible mistake by the federal government. And so at that point, the opposition, I think, sensed weakness and they were piling on and they were pointing out that the exemptions for home heating oil were unfair. Danielle Smith and Scott Moe raised that point after about three minutes of the government's decision.

And they were quite right that to exempt home heating oil but not natural gas was unfair. Anyway, so we put together the letter from Canadian economists arguing about why the critics of carbon pricing were wrong or why their arguments were wrong. Anyway, so we did what we could. We did what we could and it wasn't enough. My wife thinks that we ended the Ecofiscal Commission several years too early. I don't know whether that's right or not but we ran, we planned to go for six years and we ran for six years and by the end of 2019 we were done. The federal conservatives obviously were the strongest opposition to this and you're quite right, Pierre Poliev was just quite masterful

in the way he demonized this plan and managed to get a significant chunk of Canada and Canadians against it. But you had a populist conservative leader in Preston Manning on the commission. You had a red Tory leader in Jean Charest on the commission. Was there any attempt to say to either of them, can you please go out there and talk to Poliev, talk to conservatives, speak in conservative circles

and try and get this thing back on the rails? So you mentioned a number of the people on our advisory board. I loved our advisory board at EcoFiscal and Preston Manning called it the trans-partisan. He wasn't bipartisan, it was multi-partisan, it was transpartisan advisory board. And that was done for a reason. We knew that we would be, when we launched the Ecofiscal Commission in the fall of 2014,

we knew we would be stepping into a political minefield and we wanted that sort of cover and representation on our advisory board. They were very good ambassadors to the Ecofiscal Commission and you know some of them did more than others. But I don't think in retrospect, and maybe we believe this at the time, that you know just picking up the phone and having Preston Manning talk to Pierre Poliev, which may well have happened. I can't recall. I certainly wouldn't be surprised. I don't think we should expect that that would have necessarily changed, you know, Pierre Poliev's position or Scott Moe's position.

I think one of the things that perhaps we are naive about when the liberals adopted a carbon pricing policy, and traditionally we viewed a carbon pricing policy as actually a fairly market friendly and even a conservative type policy. The hard left policy approach to climate would be to have much more intrusive, much more prescriptive, heavy hand of government regulations. Whereas using a cap and trade system or a carbon price, a carbon tax is actually a much more market friendly way. So, you know, Trudeau and his government had actually adopted a conservative,

what traditionally had been a conservative approach. But I guess we were naive in thinking, okay, great. Well, the conservatives will then see that that is traditionally a conservative policy, so they won't object. I think it's now pretty clear why that, you know, Pierre Poliev and other conservative leaders oppose this because they're the opposition and they saw a policy that was being promoted by the Trudeau liberal government and they opposed it. was being promoted by the Trudeau Liberal government and they opposed it.

I don't think they wanted to say they don't believe in climate change. That has become almost unacceptable. So I don't think they wanted to say that. And I don't think they wanted to advocate the much more heavy-handed regulatory approach. So what they did is they complained about the carbon price put forward by the Trudeau government, but they didn't offer an alternative. And, but that became a very effective political position, especially after that inflation started. Indeed, indeed. All right, down to our last minute, and I want to ask you one last question, which is, given that Mark Carney has zeroed out the consumer aspect of the carbon tax, and the industrial tax remains,

but that's the only one that remains, do you believe we can still get to where we need to get to with just that? Well, it's a great question, and I have never heard Mark Carney say to endorse our current 2030 targets, right? And I don't know whether he does endorse those 2030 targets. I think he's going to have a hard time. He has claimed early on in the, in the campaign leadership campaign and in the election campaign, he claimed that he would be ramping up the industrial carbon pricing system. And if he did ramp up the industrial carbon pricing system, then it, in fact,

it could do more work. But the removal of the carbon, the retail carbon price is going to leave a significant gap in our policy package. And so it needs to be replaced. So either it needs to be replaced by something else. And he's talked about having the industrial carbon pricing system raise resources that would then be used to provide consumer incentives, but no details on that, so we don't really know what he means by that. And we haven't really heard any details about how much he wants to ramp up the industrial carbon pricing. So I think he is going to have a very challenging time designing a policy that gets us to our 2030 targets

and is a reasonably low cost approach. I mean, there's a reason why economists advocate carbon pricing. It's not just a randomly chosen way to reduce emissions. It's the lowest cost way that we know of. So I think he's gonna have a hard time doing that. And I think the truth is that his focus is on other things right now. And I'm not so sure that that's inappropriate, frankly. I mean, as much as I care about climate change and good climate policy,

I also care about overall Canadian economic prosperity and our access to global markets and making sure we're carrying out our defense commitments and other things. So back to my earlier point that I think climate has been pushed down a couple of notches in the priorities of Canadians. Also, it's been pushed down a couple of notches in the priorities of our governments. And that shouldn't be too surprising.

So I think Mark Carney's got a very interesting set of tasks in front of him. Understatement of the program tonight. Chris Reagan from McGill University's Max Bell School of Public Policy. It's always great to have you on our program. Take good care and we'll see you down the road sometime. Thank you, Steve, and congratulations once more. Thank you.