Why Canada Needs to Send Different Signals to Polluters

We won’t drive down climate pollution, far enough or fast enough, until our system more blatantly signals purchasers to do the right thing. Leaf blowers are the example that proves the rule.

Nov 03, 2024

In late October, we published a post on the politics of carbon taxes and how the current federal carbon price became the flashpoint for the political risk now facing the full menu of climate policies in Canada. In the interest of equal time, today’s Weekender passes the mic to Canada’s Clean50 founder Gavin Pitchford for a more detailed exposé on why putting a price on polluting purchases is a cornerstone for a more successful climate strategy.

In his Energy Mix Weekender post two weeks ago, Mitchell Beer expounded negatively and forcefully against the idea of any other tax being used in Canada to encourage environmentally friendly purchasing choices and discourage those that are not. The organizers of the Clean50 Summit held October 10 were castigated for even introducing such a subject for discussion. Horrors!

Here’s the thinking behind an idea so radical that it’s actually common across 32 of the 38 OECD members that have a value added tax (VAT) of some sort, similar to our GST/HST—and often in addition to a carbon tax and massively more expensive fossil fuels.

To put this in perspective, of the 32 OECD countries that have GST-like value added taxes, Canada is one of just six that have only two rates—in our case essentially zero (food and certain essentials) or 5% (almost everything else), plus a variable provincial sales tax. The provincial component is either assessed independently or structured as a 13-15% harmonized sales tax (HST) that includes the GST.

So, compared to the vast majority of developed countries, our sales tax system is a pretty blunt instrument. Unfortunately, when the inflationary Manufacturers’ Sales Tax was abandoned in favour of the widely-used value-added system, the most important feature was left out: Multiple tax rates.

Of the countries using VAT systems, some have up to 20 different rates (Pakistan), but most common is four or five rates (pretty much all the EU). The “standard” rate in most places is higher than here (16-20%), but without an added province-by-province rate.

Variable Taxes Drive Purchaser Behaviour

Elsewhere, varying lower rates are applied to things that are considered socially beneficial. For example, repairs are often taxed at zero or much lower rates than buying new products. Energy-efficient building products and renovations are often taxed at low or no taxes, while a bedroom or a new kitchen reno would still bear the standard rate. Locally produced foods and a varying range of family essentials are often, as in Canada, taxed at minimal or zero rates.

As our Clean50 Analyst’s research this past summer reported, sales of gas-powered vehicles, yachts, and other environmentally unfriendly items, as well as “luxury” goods, are taxed at the high or even a higher than standard rate, and sometimes, much higher.

These varying rates demonstrably drive purchaser behaviour. For example, a vast difference in tax rates in Norway between gas- and electric-powered vehicles helped transform a country with weather as cold as ours to shift a stunning 95% of all new vehicle purchases in 2023 to electric!

Software for every major point-of-sale system in the world flawlessly manages different value-added tax rates based on bar codes—as it does in Canada, where PST, HST, and other rules vary by province. Canadian retailers are already managing multiple different rates of sales tax, so catching up with the rest of the world by adding two or three more rates would not be a credible burden.

And were we to do so, we would have the opportunity to convert our sales tax system from a blunt instrument into a sophisticated policy tool that nudges all purchasing decisions in a direction that supports our Paris 2015 climate commitments.

Why should we care?

Since 2011, every single Clean50 Summit before this last one has concluded with a demand endorsed by virtually every Honouree participant that we (please!) find a way to price externalities. Summit participants are virtually unanimous in their belief that only if we price in externalities will we force change. And so this year we sought to debate one means of doing so.

So Why Not in Canada?

Beer’s Weekender post argued that Canadians are already hugely divided over carbon taxes. Leaving aside the present government’s miserable efforts to sell the carbon tax, in a unique but micro and unscientific survey, Canadians heartily embraced the idea of adding more tax and even annual user fees to polluting products—and at a time well before the present climate emergency was as well understood.

In a September, 2000 mailout, then-Liberal MP Carolyn Bennett asked the constituents of St Paul’s in mid-town Toronto—a swing riding at the time—what they thought about varying the GST to be higher on certain goods bad for the environment, and lower or eliminated on goods that were better. Some 16 examples were offered up.

She was completely shocked. That mailout garnered, by a massive margin, the single biggest response to any survey the future minister had ever distributed. A completely unexpected number of her constituents mailed their responses back, with a stunning ~80% in favour of all of the ideas listed! Bennett was so heartened that she shared the results with then-prime minister Jean Chrétien and other members of cabinet, but it went no further at the time. In 2006, the Liberals were voted out of office.

Fast forward to 2024. We are now, without question, in a much bigger climate emergency—and one where disinformation and catchy phrases can seemingly stall or turn back the needle. In the face of widespread misinformation, we have in place a carbon tax that the government has done a very poor job of selling. It’s poorly understood by the public, and—far worse—clearly not understood at all by most members of the media, who routinely fail to fact check opposition pols when they lie about it.

Nor does it noticeably influence consumer purchasing choices. Although the big greenhouse gas generators will likely continue to pay the carbon tax under a new federal government, the consumer-level elements are not likely to survive the likelihood of Mr. Axe-the-Tax taking over. I despair that we have few ways of driving the necessary changes to purchasing behaviour, and I fear that a year from now, we may not even have a carbon tax. We need something consumers and the media can better understand.

And here’s the other thing: the carbon tax as it now stands does not come close to pricing in externalities in the way it would need to do to drive real change.

The amount of carbon tax in the use or purchase of some of the worst products is so minimal that their appalling use continues, to our great shared detriment.

How Bad Are Leaf Blowers? (Really, Really Bad.)

The Weekender made fun of my alleged obsession with gas-powered leaf blowers. But here’s the thing: they’re a perfect example that consumers can easily understand, and they produce a noise everyone abhors, so they’re a very easy target to use as a poster child to illustrate why it is critical that we start to price externalities if we really want to change the course of climate change.

Are leaf blowers really that bad? The City of Los Angeles, home to some of the worst and most congested traffic on the planet, has determined that it has more pollution from—yes—LEAF BLOWERS and other two-cycle engines like lawn mowers, than from all the traffic we regularly see clogging their endless highways. Yet the carbon tax embedded in running a leaf blower for a full hour costs about five cents, not remotely enough to make a difference to purchasers. They’re pretty cheap, effective, and running them costs next to nothing—plus refueling takes seconds, versus the time cost of recharging a battery-operated model. So absent product education, and pricing in the full cost to society, consumers make the choice that moves the most leaves per hour without thinking too carefully about the inhalable particles they spew.

Pretty much anything using a two-stroke engine offers the same ridiculously high level of pollution—while costing virtually nothing in the form of carbon taxes to operate.

Pricing Pollution As If It Matters

Our proposal at the Clean50 Summit was to take a broader look at using fiscal policies to drive easily understood and highly impactful changes in consumer behaviour. Leaf blowers were but one item cited.

There are two ways to render fossil fuels unnecessary: Price them to be so expensive that demand decreases—something politicians are loathe to do—or drastically drive down demand for all the fossil fuel-powered anythings, by making the things that use fossil fuels much more expensive than their electric alternatives.

We frequently do the opposite, and it makes no sense!

We allow companies and individuals to completely deduct the cost of parking, and the cost of car allowances for their employees, for business purposes, while making a bike allowance or a public transit pass a taxable benefit. And we allow the makers of two-stroke engine-powered appliances to sell their wares with no downstream accountability for their use, nor any penalty incurred by the purchaser. No accountability or disincentive for the outrageous quantity of inhalable particulates they spew into our shared air, for driving up our shared health costs, for giving kids asthma—nor for accelerating climate change.

That needs to change!

Fully electric alternatives exist, but there’s rarely a cost-performance advantage, and with batteries we have the added concern about range anxiety. “OMG! What if I have to finish the job by… raking?”

It’s our contention that electric leaf blowers and rakes should be tax free – and the gas-powered versions should have double or triple the tax added on—to send clear signals that this is BAD for us! For our climate, for the air we breathe, for our health costs and our asthma and our kids.

So yes—if you must, you can still go gas-powered… but then you will need to pay for the externalities!

Similarly, the most energy-efficient laptops, power tools, appliances, vehicles, etc., should be taxed at minimal or very favourable rates. Using ratings such as the Energy Star system already in place for refrigerators and other appliances, the items that are energy gluttons can and should be taxed according to their impact on our health and the environment.

Such changes would quickly drive consumer choices—and consequently retailers, wholesalers, and ultimately manufacturers would strive to enhance energy efficiency in their products as a way to protect their sales volumes. If, for example, gas-powered vehicles attracted a tax of two times their litres-per-100-km ratings (Hummers then add 34%), what would be the impact on gas guzzlers? And their manufacturers?

Time to Step Up

At this year’s Clean50 Summit, we hoped to see a group of climate action thought leaders considering whether fiscal policy reform might be a better way to more quickly drive our emissions down and meet the moment—and so something we should consider going forward. Not to replace the carbon tax—but as a revenue-neutral, easily understood, easily explained add-on that preserves purchaser’s ability to choose, but holds them accountable for the costs they impose on the rest of us, and which might be harder to demonize.

At the end of the day, no matter the cost, fossil fuel extraction will continue for as long as the market uses them. The faster we can eliminate demand, by both promoting cost-effective and reliable alternatives at lower tax rates and taking a common sense approach to removing perverse incentives to keep doing stupid stuff, the sooner emissions will drop.

It’s working in so many European and other countries. Why would any climate- or health-conscious Canadian think it should not even be discussed at a Clean50 Summit?

Click here for more research from Canada’s Clean50 on using fiscal policy to drive better outcomes.