IMF calls for green shift with 52% gas tax hike in Canada

The International Monetary Fund says Canada and other countries can improve their economies and environment by hiking energy taxes — while cutting them on people and capital.

In a new book, Getting Energy Prices Right: From Principle to Practice, the IMF essentially endorses policies — at times advocated by the federal Liberals and NDP — calling for what some have termed a "green shift" in the taxation system. The Conservative government, however, has rejected carbon taxes.

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The premise of the book is that while carbon-based energy was indispensable to economic growth during the past century, it has come with considerable costs.

The solution, the IMF says, is to tax energy to such a level that the revenue pays for energy's environment and health costs.

Proposes 52% increase in Canadian gas tax

In a novel and rather ambitious approach, the Washington-based financial institution attempts to calculate the cost of carbon energy — coal, gas, motor diesel and natural gas — for 156 countries and proposes precise taxation levels for each country to implement.

"The results confirm that many countries — advanced, emerging, and developing — are only at base camp with regard to getting energy prices right," IMF managing director Christine Lagarde says in a foreword to the 199-page book.

For Canada, getting the price right could be a shock to the system of consumers and industry.

For instance, the IMF says gasoline should be taxed at about 55 cents US a litre instead of the current 36 cents, and road diesel at about 64 cents per litre, instead of the current 42 cents.

The book uses U.S. currency calculations, which means numbers in Canadian dollars are not precise, but they roughly translate to a 52 per cent increase in the taxes applied to both gasoline and diesel.

Meanwhile, the IMF says there should be a $4.90 US (about $5.34 Cdn) per gigajoule tax on coal, where there is none now, and natural gas should be taxed at $2.20 US ($2.39 Cdn) per gigajoule, in place of the small subsidy that currently exists. A gigajoule is a unit of energy.

Joe Oliver rejects idea

In an email response, Finance Minister Joe Oliver said the Canadian government rejects the recommendations.

"We will not impose a 52 per cent increase on gasoline and diesel taxes, which would hurt consumers and businesses," he said. "High energy prices are already a serious competitive disadvantage for European industry and are causing a capital and business outflow to the U.S. Our objective is to reduce taxes on Canadian families and employers, not raise them."

In an interview, co-author Ian Parry agreed such proposals have caused a voter backlash whenever suggested, but adds that the trick is to make clear to voters that other taxes, particularly those on income, will be cut by identical amounts.

"We are not talking about increasing the overall tax burden; we are talking about a smarter more efficient way to use taxation to meet a country's fiscal objectives," he said.

Parry admitted, however, that governments haven't been very successful at communicating the "revenue neutral" message and that voters have been skeptical. One way of trying to convince people they are not being gouged is for governments to cut income taxes before introducing the added carbon charges.

As well, he said, carbon taxes should be phased in slowly to lessen shocks to the economy.

The IMF calculates phasing in the carbon taxes to the levels it suggests would increase Canada's gross domestic product by 1.4 per cent, reduce carbon emissions by 15 per cent and diminish deaths from air pollution by 25 per cent, the latter mostly from reducing coal use.

A way to influence behaviour

It cautions that the numbers are estimates only, based on assumptions that can be debated, but that the overall message is valid.

"Underpinning the policy recommendations is the notion that taxation can influence behaviour. In much the same way that taxes on cigarettes discourage their overuse, appropriate taxes can discourage overuse of environmentally harmful energy products," the authors write.

On costs, the authors attempt to tally up the impacts of carbon not only on climate change, but also for more common air pollution that affects health, as well as traffic congestion and accidents.

Stewart Elgie, chair of the think-tank Sustainable Prosperity, said there are now real world examples of a carbon tax working.

“In the last 10-15 years we’ve seen more and more places around the world start to put a price on carbon pollution starting with many of the European countries – Germany, Norway, Britain in recent years, even British Columbia,” he said in an interview with CBC’s The Lang & O’Leary Exchange.

How about B.C.?

“We hear the prime minister say a carbon tax will kill jobs and growth. It hasn’t done that in B.C. B.C. has one of the highest carbon prices in the world and they’ve had it for five years and their economy is fine and they’re outpacing the country on fuel efficiency,” Elgie said.

British Columbia now has Canada’s lowest income taxes and also lower corporate taxes, because cash from high carbon taxes went to those incentives, he said.

“Government has to tax something...Do you want to tax your pollution or do you want to tax employment.”

Globally, Canada is near the bottom on the scale of taxation levels for gasoline among industrialized nations. It taxes gas higher than the U.S., but generally well below taxation levels applied in Europe and Japan.