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Is the federal carbon tax really a nightmare for small businesses?
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By BRIAN MILNER
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Special to The Globe and Mail
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Monday, August 19, 2019 – Print Edition, Page B3


To hear small-business opponents of the federal carbon tax tell it, they are among the leading casualties of an ill-considered, poorly designed effort by the Trudeau government to burnish its climate-change credentials at the expense of economic growth, jobs and the profits of hard-working entrepreneurs.

Rents, fuel, processing, shipping and other costs will rise and already thin margins will suffer in a slowing economy, in which competitive pressures make it tough to pass on increases to customers. To add insult to injury, small businesses will have to earmark additional capital for approved emission-reduction measures in order to qualify for government rebates that will cover only a fraction of their costs.

The Canadian Federation of Independent Business (CFIB) calculates that small business accounts for almost 50 per cent of all carbon-tax revenue, but Ottawa is returning only 7 per cent through rebates.

"We've been talking loudly about the unfairness of the current system," says Corinne Pohlmann, the CFIB's senior vicepresident, national affairs. "There's a lot more given back to the individual taxpayer.

[Small business] owners feel like they're the ones paying the freight."

It's too early to gauge the impact of the federal tax, which came into effect April 1 in four provinces - Manitoba, Saskatchewan, Ontario and New Brunswick - with either no carbon plan of their own or one that failed to meet federal guidelines. Alberta will be joining the club Jan. 1 after newly elected Premier Jason Kenney pulled the plug on an existing program.

But economic analyses and evidence gathered elsewhere indicate that the fears of small business aren't necessarily grounded in reality.

"There's definitely a lot of scare-mongering about the potential impact of these carbon prices," says Leigh Raymond, a political science professor at Purdue University in Indiana, who studies the politics involved in market-based policies to reduce carbon emissions. "The impacts are not zero, but they're far from the most fearful [predictions]."

Additional taxes of any kind typically lead to higher consumer prices as businesses pass whatever costs they can down the food chain, which Ottawa has figured into its plan to return 90 per cent of the carbon take to individuals through tax credits.

Price-sensitive industries such as construction are bound to take a hit. And the higher costs will inevitably be passed on to general contractors, developers and ultimately those buying or leasing the spaces.

The tax will also dampen exports, business investment and economic growth, but only slightly, according to an assessment by the Conference Board of Canada.

"These changes are small," says Michael Burt, executive director with the Conference Board. "For example, assuming an $80-per-ton carbon tax in 2025, we find that consumer prices would be 1.4 per cent higher, employment would be 11,000 jobs lower and GDP would be 0.08 per cent lower at that time."

And these modest negatives would be offset by increased investment in cleanenergy technologies and infrastructure as the tax revenues are recycled back into the economy.

The board's forecast is based on an assumption that only half the carbon-tax haul would be returned through tax breaks and that Ottawa and the provincial governments with their own versions of carbon pricing would spend the rest on new programs.

The federal levy, which is currently pegged at $20 a ton, is set to rise to $50 by 2022 - about 11.5 cents on a litre of gasoline.

The government insists it will be frozen at that level if the Liberals win re-election in October. The opposition Conservatives have vowed to eliminate the tax if they prevail at the polls, turning carbon pricing into a key election issue.

In British Columbia, which imposed the first carbon tax in North America in 2008, "anecdotal evidence suggests the policy is a success - achieving large reductions in pollution at relatively modest cost to the economy," says an academic paper released last fall by a trio of environmental economists - Hendrik Wolff of Simon Fraser University, Akio Yamazaki of the University of Calgary and Deven Azevedo, a graduate student at the London School of Economics.

Their research into the employment impact of the B.C. tax found that it has indeed caused some pain for larger players in energy-intensive and trade-focused industries. But it has actually boosted jobs in smaller service and manufacturing businesses operating in such sectors as health, food, tourism and apparel.

Income-tax cuts and direct rebates introduced alongside the B.C. carbon levy - it was originally designed to be revenue-neutral - "increased the purchasing power of low-income households, benefiting locally operating businesses," the study found.

No one questions that it's politically hard "to increase what we might call pocketbook costs to constituents," even when those increases are relatively small, says Prof. Raymond, who has examined carbon-pricing efforts in Canada and several U.S. states.

"So things like fuel surcharges are salient. The polity pays a lot of attention to them. Any kind of policy that might increase those prices is likely to be more challenging."

Governments, he adds, "need to think carefully about who's going to bear the costs and what they're going to do with that revenue to be convincing that what they're doing is useful and that they're also going to help people cope with economic pressures they might feel." That, insist the small-business lobby and other critics of the tax, is where Ottawa gets poor marks.

CFIB members are "highly supportive" of efforts to reduce carbon emissions, Ms.

Pohlmann says. "It's not a question of being opposed to doing what they can to reduce their carbon footprint. It's the regime that's been set up ... that's causing a lot of anxiety for small-business owners."

Ottawa belatedly announced two carbon-tax rebate programs for small business at the end of May, totalling $1.4-billion over four years to cover up to half the costs of investing in energy-saving equipment and appliances.

"It took a while, to be honest, to get the details right," federal Environment Minister Catherine McKenna said at the time.

"We wanted very practical things that will help small businesses save money."

Business operators are still waiting to learn how the subsidy programs will be implemented, Ms. Pohlmann says. "There's very little information and you have to invest your own money in order to get back money you put into the carbon tax."

There is plenty of criticism from all sides over the way the government has designed the tax, says Catherine Abreu, executive director of Climate Action Network Canada, who laments the fact climate change has turned into "such a polarized political topic right now."

The tax "is a product of compromises that the government has made to stakeholders. So it's not perfect. But it's really important, because once something's in place, you have the opportunity over time to adjust it so that it works better for the people who are affected by it."

Putting a price on carbon, Ms. Abreu says, is just one piece of the climate-change puzzle.

Part of what carbon pricing is meant to do is incentivize the private sector to pursue innovative methods to reduce greenhouse gas emissions. That helps businesses operate more efficiently. "But it also potentially creates the space for them to be a more cutting-edge player in this new kind of economy," she says.


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