Governments shouldn't count on predictable response to carbon taxes

Written By: Stewart Muir
Published: Affordable Energy (www.affordableenergy.ca)

The night before British Columbia’s carbon-dioxide emissions tax was implemented in February 2008, I was surprised to see lineups at gas stations. Some motorists apparently believed that the end of affordable gasoline was nigh and they better fill up, because at midnight they’d start paying an extra 2.5 cents a litre.

The world didn’t end, and over the next year, B.C. recorded a small drop in the amount of gasoline sold for road-transport use. From 1,107 litres a person in 2007, consumption fell by four per cent.

Since this coincided with the 2007-2009 “great” global recession, there has always been some question whether it was carbon pricing or alternatively a reduction in general economic activity, that accounted for the drop. B.C. registered barely any economic growth in 2008. In 2009, its economy shrank.

Ten years later, it’s often claimed that the B.C. carbon tax has brought about a long-term, 10-per-cent decline in fuel consumption. That’s simply not true. In fact, consumption of gasoline and diesel went up — not down — on a per-capita basis from 2008 to 2017. The most striking correlation was how closely the consumption of liquid road fuels (mostly gas and diesel) tracked the ups and downs of the economy.

As Canada prepares to embark on a much broader carbon-pricing adventure, once again we’re locked in a numbers game. Those experts squabbling over who has the most elegant economic model have gotten way ahead of themselves. A most basic question is being overlooked: Will a carbon tax cause fewer hydrocarbons to be combusted or won’t it?

The major overlooked fuel story of recent years has been how consumers reacted to ever-increasing efficiency from technology.

In 2007, before B.C.’s carbon tax came in, the Honda Civic was the country’s most popular new car. In those days, for every sedan or hatchback sold in B.C., one truck or SUV was sold.

Then something unexpected happened.

As the global economy emerged from recession, buyers suddenly wanted more pickup trucks and SUVs. By the summer of 2018, the ratio was 2.7 new SUVs and light trucks for every new car. It’s the same trend across Canada. Today, the Ford F-150 is the country’s most popular “light” vehicle.

The most economical Ford F-150 available in 2007 ran on a 4.2-litre engine that produced 25 per cent more CO2 emissions than the average vehicle. One decade later, Ford’s basic model today has a 2.7-litre engine that’s smaller than the average light vehicle engine and delivers just slightly-below-average GHG performance. Greenhouse gas emissions from consumer vehicles available to B.C. buyers fell 17 per cent in the decade to 2017, in part because engine size generally decreased.

Further innovations meant that a new Toyota Camry for sale last year burned 8.3 per cent less gasoline than a 2007 model with the same sized engine.

It turns out that as more performance (energy) is squeezed from a litre of gasoline, people tend to rationalize the purchase of a bigger vehicles. Whether or not there is a $20, $30 0r $50 a tonne carbon tax to pay — on top of all of the other fuel taxes — seemed not to be much of a consideration over the past decade.

The long-faced carbon experts may wish to treat these trends as a sideshow, but the behaviour of wily consumers under low-dose carbon pricing looks more like the main stage.

Governments can flip a switch on carbon taxes, but will that produce the intended result? It didn’t in B.C. We’ll see what happens elsewhere. But for most families, commuting and home heating are part of daily life, not a luxury.

Meanwhile, any talk of proven measures — more innovation by the Canadian oil and gas sector, improvements to traditional vehicles (now predicted to double today’s fuel economy by 2040), and zero-CO2 nuclear energy — is deemed to be politically dangerous, drawing accusations about having no plan, or worse.

Such is the parlous state of the Canadian energy debate in 2018. We are on track to soon repeat, at a national scale, the lacklustre British Columbia experience of carbon pricing.

— Stewart Muir, founder and executive director of Resource Works, was business editor and deputy managing editor of The Vancouver Sun when British Columbia implemented its carbon tax. He writes for Canadians for Affordable Energy.