Killing cap and trade is costly. But keeping it is worse

(October 19, 2018) To pay for the 57 beneficiary programs, cap and trade was taking $2 billion a year out of the productive economy.

This article, by Lawrence Solomon, first appeared in the National Post

This week, Ontarians saw headlines warning that “Doug Ford’s plan to scrap cap and trade will mean $3 billion in lost revenue, FAO report says.”

Well, duh.

Whenever a government decides to cancel a tax regime that restructures a large part of an economy — which is what Ontario’s cap-and-trade carbon-pricing scheme was doing — its treasury can be expected to take an initial hit. No surprise here, certainly not one that merits the media’s condemnation of Premier Ford for “losing” a net of $3 billion over four years. Rather, if there’s any surprise, the media might instead have focused on Ford’s ability to so inexpensively reverse ruinous policies that were tanking the province. The $3 billion, a figure based on a report from the province’s Financial Accountability Office, represents less than one half of one per cent of the provincial budget.

The cap-and-trade program — a $2 billion per year tax grab — especially hit households by raising their transportation and heating costs by about $300 a year, making virtually everyone a loser. In the case of natural gas, cap and trade increased its cost by 11.7 per cent in 2018, the FAO reported, and suggested the increase could have reached 15 per cent by 2022. The FAO also wisely provided a caveat, to the effect that it was making no judgment as to whether the carbon-pricing program made economic sense, or even environmental sense.

So who were the winners of this economy-distorting tax grab? The single biggest worthies by far were the few individuals who could afford to buy a Tesla or another electric vehicle — they received rebates courtesy of cap-and-trade revenues of up to $14,000 per vehicle, or $28,000 for two-car families.

Because these rebates on their own weren’t enough to induce individuals to purchase electric vehicles, the previous government set aside more cap-and-trade monies for further subsidies. Under its Electric Vehicle Charging Incentive program, homeowners could receive an additional $1,000 ($2,000 for two-car families) to install home-charging stations.

Under its Workplace Electric Vehicle Charging Incentive Program, employers and commercial building owners received up to $7,500 per charging space that they installed in workplaces, to allow Tesla owners the ability to charge up at work. Under its Electric Vehicle Chargers Ontario program, $20 million was budgeted for a private firm to build 500 charging stations to enable Teslas to charge up along highways.

The FAO listed more spending to help out Tesla and other electric vehicle users, too. There was the Overnight Electric Vehicle Charging initiative, intended as a four-year free overnight electric vehicle-charging program for residential and multi-unit residential customers that would cost taxpayers $15 million, and the Vehicle Scrappage Incentive, which would provide up to $20 million in rebates to low- and moderate-income households willing to replace their existing cars with new or used electric vehicles or plug-in hybrids.

The Ford government saw the cap-and-trade program for the disaster it was

If there were any slow learners or laggards in Ontario, the government ensured its cap-and-trade scheme provided funding for lobbying and advocacy organizations to enable them to reach all corners of Ontario industry as well as the general public. Through programs such as the Electric and Hydrogen Vehicle Advancement Program, the Electric Vehicle Education and Awareness Program and the Electric Vehicle Discovery Centre, a showroom and facility providing test drives of any of the nine electric vehicles on the market, the government was going to help us all understand why we needed to switch to electric vehicles to save the world from climate change.

All told, the FAO listed 57 programs that were beneficiaries of cap-and-trade revenues, half of which directly or indirectly were designed to promote electric vehicles and discourage the internal combustion engine. The other half sprinkled funds for “green investments” to government dependents, among them Indigenous groups, public service unions, schools, hospitals, public transit, agricultural lobbies, cycling advocates and social housing. Much of the $2 billion raised annually would have been wasted and worse, because after the electric vehicle industry collapses — as it must once the subsidies run out — society will be left with rusting charging stations and other infrastructure that it will then need to rehabilitate.

The Ford government saw the cap-and-trade program for the disaster it was. To pay for the 57 varieties of waste, cap and trade was taking $2 billion a year out of the productive economy, in the process hobbling Ontario businesses through high energy costs that prevented them from competing effectively and punishing individual Ontarians by raising their heating and transportation costs. By the FAO’s reckoning, the kicker of the past government’s climate change obsession is $3 billion in legacy costs.

Paying those legacy costs and ending the cap-and-trade program will end the bleeding. The Ford government estimates that Ontario taxpayers will be saving as much as $1 billion over four years just by scrapping the electric vehicle rebates. By scrapping most of the other 56 boondoggles, taxpayers will be saving billions more. Meanwhile, the government treasury will be collecting billions in more sustainable taxes, generated by an economy that produces rather than destroys wealth.

Lawrence Solomon is executive director of Toronto-based Energy

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