How a break at the pumps is a reverse carbon tax — and could make climate change worse

In the wake of the Russian invasion of Ukraine, the long-standing dispute over how governments should be spending our tax dollars in the oil and gas sector has become more complicated and, if possible, more heated.

As Canadians wait to hear Ottawa's spending plans in today's budget, there are conflicting views worldwide over whether countries should be producing more oil and gas to help Europe — or saving the world from climate change and leaving fossil fuels in the ground.

At both the federal and provincial levels, Canadian governments are trying to have it both ways.

The new two solitudes

And Canadians remain widely divided, "a new two solitudes" according to one well-known economist, over whether producing more fossil fuels is entirely good — or entirely bad. But that same economist, Christopher Ragan, says it doesn't have to be that way.

The climate report released this week by the Intergovernmental Panel on Climate Change, however, suggests the answer is unequivocal. With the world on a path to climate destruction, the time has come to stop all spending on new oil and gas facilities.

"Investing in new fossil fuel infrastructure is moral and economic madness," UN Secretary General António Guterres said as he released the report.

WATCH | Why climate change researchers say we need to slow fossil fuel use:

UN report on climate crisis paints grim picture

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The world is on track to blow past a critical climate threshold unless significant efforts are made to curb emissions and reduce reliance on fossil fuels, the latest UN climate change report warns. In the 2015 Paris climate accord, countries had agreed to limit global warming to 1.5 C.

Clearly there are other views, and one of them was expressed this week in quite a different report by Deloitte Canada titled Strategic transitioning: The future of oil and gas in a decarbonized world. 

While the report sees this industry in Canada making a gradual shift toward reducing climate change, the path to that goal includes an increase in oil and gas production to feed world demand — and help Europe fend off Moscow's political and economic death grip, Andrew Botterill, one of the report's authors, said in a telephone interview.

"We have these sources, Europe is wanting them right now because of their energy crisis, but at the same point we are trying to decrease emissions and increase production," Botterill said. 

He thinks it is fair for governments to be helping with that, partly to help the industry deal with future uncertainty but also to help Canadians struggling with higher prices. 

"We'd hate for individuals to have to worry about [if they can] heat their homes and still get their groceries," Botterill said.

Subsidies for transit

Elsewhere there has been widespread outrage, including in the main editorial in the Globe and Mail this week, over moves by provincial governments to subsidize the price of gasoline. Like a pro-carbon tax — a kind of reverse carbon pricing — it takes your own tax money and gives it back to you if you spend more on fossil fuels.

For Canadians who have been flooded or burnt out, and those who take the IPCC report to heart, that is discouraging. Especially when economists know there are plenty of ways to help people suffering from high fuel prices, and help the industry, without subsidies being connected to making climate change worse.

"High gas and diesel prices are hurting businesses and citizens who need to drive," said Dan Woynillowicz, who runs Polaris Strategy and Insight, an independent business working on energy and climate policy.

He said those people may need some support, but that could come in cash payments that people could decide to spend on fuel or on something else. He pointed to California where some of the subsidy came in the form of three months of free public transit.

While there are no expectations that handouts to buy gasoline will be included in the federal budget, there are still some strong objections to federal tax dollars being distributed to oil and gas companies that are currently seeing a huge surge in profits, partly due to the war in Ukraine.

One of the issues the budget is expected to touch on is a contribution to carbon capture and storage or CCS.

Cost of doing business

"When oil prices were low, the industry couldn't afford CCS," said Woynillowicz. "Now when oil prices are high, they say there's no money to be made in CCS, as though they are entitled to a return on investment.

"CCS is the cost of doing business in a socially acceptable manner — the return on investment is that you are permitted to keep producing oil and earning from those barrels."

It is hard to imagine anyone describing Ragan, the economist and coiner of "a two new solitudes," as part of what Alberta Premier Jason Kenney has characterized as the "green left."

Ragan was known as a hard-nosed pro-market economist at Montreal's McGill University long before he headed the country's Ecofiscal Commission and took on the duty of championing a national carbon tax as the most business friendly way for Canada to fight climate change.

With the expectation that today's federal budget and provincial government policies will keep waffling over whether tax dollars should be spent slowing the use of fossil fuels or to help the industry produce more, Ragan said he understands why Canadians may be confused.

Defeating climate change isn't easy

"I think most Canadians' hearts are in the right place, they think climate change is a serious problem, they think climate change needs to be addressed," said Ragan, now director of McGill's Max Bell School of Public Policy. "I think many, many Canadians have not figured out that these changes are not going to be super easy."

Like many others, Ragan deplores the idea of using tax dollars to subsidize the price of fuel at the pumps, and he believes governments have to be risk-takers by helping to stimulate investment in new climate friendly technology

.

He said that includes carbon capture and storage, because, if successful, mass carbon storage would be a big economic step toward reducing atmospheric carbon — especially in industries such as making steel and cement where getting rid of carbon as a byproduct is hard or prohibitively expensive.

"I'm probably not in favour of incentives on this indefinitely, but I think providing serious investment tax credits for a while, to see to what extent we can scale this up and make it economical, is probably a good investment," Ragan said.

Ragan is convinced Canada's job is to get greenhouse gas production down domestically even as it satisfies global demand for its fossil fuels, fuels the world would just get elsewhere if Canada did not sell it.

"I think we have a federal government that is doing the right thing here, but they are not doing a very good job of explaining it."

It's pretty clear many on both sides of the new two solitudes would disagree.

Follow Don on Twitter @don_pittis