Kenney's claim carbon tax damaged Alberta economy is refuted in court documents
NDP’s Climate Leadership Plan had marginal effect on GDP growth, analysis shows
During the provincial election, and on many occasions since, the government of Premier Jason Kenney has claimed the NDP government's carbon tax significantly damaged Alberta's economy.
That claim is not supported by economic modelling contained in the Kenney government's own legal documents, according to expert analysis.
"I think not surprisingly to those of us who have studied carbon taxes, [Kenney's claims] seem quite exaggerated," said University of British Columbia political scientist Kathryn Harrison, an expert in environmental, climate and energy policy.
Those legal documents are now before the Alberta Court of Appeal as part of the province's constitutional challenge of the Trudeau government's federal carbon tax.
The federal tax will be imposed on consumers in Alberta on Jan. 1 to replace the one contained in the Notley government's Climate Leadership Plan, repealed by Kenney this spring as one of his first acts as premier.
The federal government recently accepted Alberta's plan to tax the emissions of heavy emitters at a rate of $30 a tonne in 2020.
The court documents show the economic effect of the Notley government's Climate Leadership Plan, which included a $30-per-tonne carbon tax, was an average reduction in annual growth of Alberta's gross domestic product (GDP) of only 0.05 per cent.
GDP is the total dollar value of goods produced and services provided and is considered a basic measure of economic performance.
Healthy growth under carbon tax, expert says
A recently released government report, entitled Economic Assessment of Climate Policy in Alberta, looked at four different economic scenarios, including the looming federal carbon tax.
Those government scenarios examined how Alberta would fare:
- Under the province's 2015 pre-carbon tax climate policies.
- With the NDP's climate leadership plan and a carbon price of $30 a tonne.
- With the climate leadership plan and a carbon price rising to $50 a tonne.
- Under the federal carbon pricing system.
"What they found is that there is healthy economic growth and healthy job creation under all of the scenarios from 2020 to 2030," Harrison said.
And she said the data showed even with a carbon tax rising to $50 a tonne, the difference in effect on the province's GDP would be marginal.
"The difference in the average growth of GDP at the maximum is a difference between 2.57 per cent [growth] per year and 2.5 per cent per year," said Harrison, who in addition to a doctorate in political science, holds a masters degree in chemical engineering from the Massachusetts Institute of Technology.
But job creation would be affected by a carbon tax, Harrison said. The government report said the Notley carbon tax would reduce the number of jobs created by between 10,000 and 16,000 a year.
In an emailed statement, a spokesperson for Alberta Environment Minister Jason Nixon did not address the government analysis filed as part of its court challenge.
Instead, she referenced the government report that said Alberta's average annual GDP growth, under the Climate Leadership Plan with a carbon tax rising to $50 per tonne, would be reduced by between 0.6 to 0.9 percentage points, which is about $2 billion to $3.9 billion a year.
The statement also maintained the UCP government's position that the carbon tax imposed an unacceptable financial burden on individual households.
Government relied on Pembina Institute modelling
Simon Dyer of the Pembina Institute said the reduction in GDP growth under the Notley government carbon tax was insignificant.
"The carbon tax was misrepresented in the most recent provincial election in Alberta," Dyer said, adding that the tax "hasn't had a significant impact either on consumers or on industry."
During cross-examination in October as part of Alberta's challenge to the federal carbon tax, Alberta assistant deputy minister for energy Robert Savage seemed to admit the Alberta government chose Pembina's modelling knowing it produced emissions-reduction data that was better for the government's case.
"So you had information that the Pembina Institute's modelling provided significantly smaller differences [in emissions reduction] because it had a more optimistic 'business as usual' approach?" B.C. government lawyer Gareth Morley asked Savage.
"My understanding is that there were some differences in the forecast," Savage replied, adding that he believed Navius Research, the firm hired by the Alberta government to model the effects of a carbon tax, was working with the Pembina Institute on that issue.
Under questioning, Savage also conceded the general consensus among economists is that a carbon tax is one of the most economically efficient ways to curb emissions.
Savage however, resisted a line of questioning that sought to establish that the Notley government's carbon tax had resulted in a significant reduction in emissions.
Attempted 'to misdirect Albertans,' NDP says
The environmental model Pembina used to forecast emissions reduction was developed by a San Francisco policy firm. The Alberta government used a draft version of that model to forecast that a $30-per-tonne carbon tax on building and transportation emissions would only reduce annual emissions by 1.4 megatonnes in 2020, and 2.7 megatonnes in 2030.
As part of the Paris climate agreement, Canada has committed to lowering its greenhouse-gas emissions by 30 per cent from 2005 levels by 2030. That means lowering emissions to 513 megatonnes from 732 megatonnes.
The Alberta government's own environmental modelling data, produced in court after the government filed its initial legal documents, forecast the carbon tax would reduce annual emissions by one megatonne in 2020, and by five megatonnes in both 2025 and 2030.
Dyer said the Pembina model is a "rigorous but simplified" model that doesn't consider how carbon-tax revenues could be used to drive further emissions reductions, for example through investment in public transit.
He said while carbon pricing isn't the only solution to reducing emissions, it is a critical and relatively low-cost tool that has proven effective.
"Carbon pricing works. It works for consumers in terms of helping them make different choices, especially if you provide rebates to ensure that they're not out of pocket," Dyer said, adding it is also necessary for industry.
"If we don't have strong enough carbon pricing in place, this industry is never going to be able to innovate fast enough to compete in this global market that is demanding low-carbon oil," he said.
Under the former NDP government's climate leadership plan, about 60 per cent of households were eligible for carbon-tax rebates.
University of Calgary researchers found four out of 10 households received a rebate that was greater than their carbon-tax costs. The federal government has said that under its system, that figure would be eight out of 10 households.
NDP environment critic Marlin Schmidt said the Kenney government misled the public about the carbon tax.
"I think what we saw during the election campaign was an attempt to misdirect Albertans," Schmidt said.
"We know that Albertans have been going through a really tough economy over the past few years, and Kenney used the carbon tax as a simple but wrong explanation as to what was going on with Alberta's economy."
If you have any information for this story, or information for another story, please contact us in confidence at [email protected]
Follow us on Twitter: @charlesrusnell @jennierussell_
Clarifications
- This story has been changed to clarify the relative economic impact of the carbon tax detailed in the documents.Jan 10, 2020 2:20 PM MT