PEI·Analysis

Amid calls for stronger carbon levy, P.E.I. PCs vow to keep cutting gas taxes

For the second year in a row, gas taxes on P.E.I. will drop Jan. 1, then increase Apr. 1 in a move critics say "completely defeats the purpose" of putting a price on carbon to reduce emissions.

Must be doing things right, says premier, because N.B. now copying P.E.I.’s plan

Despite continuing criticism that P.E.I.'s approach to carbon pricing will lead to negligible emissions reductions, the province's new PC government says it will continue cutting provincial excise taxes on fuel under a plan put forward by the previous Liberal administration. (Rick Bowmer/The Associated Press)

P.E.I.'s gasoline taxes will provide a new year's encore of the dance they performed at the start of 2018 — dropping on the first of the year, then rising up again on April 1.

That's a result of legislation passed under the previous Liberal government as part of its plan to comply with Ottawa's requirement to put a price on carbon, while at the same time trying to shield Island drivers from having to pay that price.

The provincial excise tax on gasoline will drop 1.2 cents per litre on New Year's Day, with a bigger drop in the tax on diesel.

Then three months later — on April Fools' Day to be precise — a different tax, the provincial levy on carbon, will increase that much and then some.

The net effect, likely to be lost in all the regular fluctuations in pump prices: taxes on both gas and diesel will end up one cent higher, just as they did in 2019.

PCs follow Liberal lead

While the new PC minority government has made a point of trying to lead with its best environmental foot forward since coming to power in the spring, in this case Premier Dennis King is content to stick with the tune called by the Liberals when they were in power.

P.E.I. Premier Dennis King says he disagrees with critics who say the province's approach to carbon pricing won't reduce emissions. And he says the recent move in New Brunswick to emulate P.E.I.'s plan tells him 'we're doing things right here.' (Randy McAndrew/CBC)

That's despite mounting criticism that cutting provincial excise taxes to offset the carbon levy is limiting its effectiveness in reducing emissions.

King says he disagrees with that assessment from groups like the Pembina Institute and Canada's Ecofiscal Commission, a pro-carbon-tax think tank.

"I understand the premise and support the premise of putting a price on carbon to help reduce and change how we do things," King said. He said the Liberal plan, which he's happy to carry forward, has raised awareness around the need to reduce emissions while minimizing the cost for Island households.

"There's a price on carbon," said King. "That price is only going to increase as we move forward. People are aware of it. They've been eased into the whole model of this. They've bought into it."

Of particular concern to King are rural Islanders in places like Tignish, with no access to public transit, who he said "only have one option: to drive to Charlottetown. Let's not penalize them for doing that."

Like offering 'a smoker's subsidy,' says economist

But UPEI economics Prof. Jim Sentance said P.E.I.'s approach "completely defeats the purpose" of putting a price on carbon to reduce emissions.

"It boggles my mind," said Sentance. "It's like if we have taxes on cigarettes to convince people not to smoke cigarettes and then the government provides a smoker's subsidy to people. I mean it's on that level of stupidity."

'There's an awful lot of people driving around this province with pickup trucks who've never worn a pair of work boots in their life, who don't need pickup trucks,' says UPEI economics Prof. Jim Sentance. (CBC)

Like many economists, Sentance believes a carbon tax, with the proceeds given back as household rebates, is the most efficient, cost-effective way to reduce emissions because it "puts the decision making about how people can reduce their carbon emissions in their hands, so they can do it in the way that's most effective for them."

He said King's concerns about rural Islanders could be addressed by increasing the rebates given to rural households, and he doesn't buy the argument that rural residents have no way to reduce emissions.

"There's an awful lot of people driving around this province with pickup trucks who've never worn a pair of work boots in their life, who don't need pickup trucks," Sentance said.

Sentance did commend the King government for vowing to stop using carbon tax revenues to provide Islanders with free driver's licences, a Liberal initiative that will come to an end Jan. 1.

The PCs say they'll pump that revenue into an active transportation fund to pay for things like walking and bike paths.

Opposition pressure

During the fall sitting of the legislature, the Official Opposition began pressuring government to get rid of the discounts to the provincial excise tax on fuel and adopt a carbon tax model closer to the federal backstop, providing rebates for Island households.

"Unfortunately we have a government which is following on the heels of another government, which did not have the courage or the foresight to actually do what is required here," said Opposition leader Peter Bevan-Baker.

Official Opposition leader Peter Bevan-Baker says he had hoped the PCs would adopt a different approach to carbon pricing than the P.E.I. Liberals had. (Randy McAndrew/CBC)

"It's been clearly demonstrated that the cheapest and the most effective and efficient way to reduce carbon emissions is through carbon pricing," he said, adding that reducing fuel taxes to offset the carbon levy "completely negates any positive impact that the carbon tax could have."

N.B. follows P.E.I.'s lead

Last week New Brunswick was given the go-ahead from Ottawa to move forward with a carbon tax plan based on P.E.I.'s model. Previously the federal government had imposed its backstop carbon tax plan on New Brunswick after rejecting its previous proposal for putting a price on carbon last year.

As a result, gas taxes in that province are expected to drop in the new year, even as the federally-mandated price on carbon increases from $20 to $30 per tonne.

It more or less makes it completely useless.— Prof. Jim Sentance, UPEI

"That would tell me we're doing things right here," said King, of the imitation from across the Northumberland Strait.

But Sentance sees P.E.I. as possibly the first to fall in a line of dominoes, which could undermine the effectiveness of the carbon tax across the country.

Having allowed P.E.I. to undercut its carbon levy, Ottawa can't very well refuse any other province wanting to do the same, he said.

"It more or less makes it completely useless," he said. 

Instead of the 6.6 cents per litre carbon tax on gasoline that will come into effect in provinces like Ontario and Alberta in 2020, P.E.I. will end up with a net increase of two cents since carbon pricing came into effect this year.

Sentence said "that's just not enough to make people change their behaviour."

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About the Author

Kerry Campbell

Provincial Affairs Reporter

Kerry Campbell is the provincial affairs reporter for CBC P.E.I., covering politics and the provincial legislature. kerry.campbell@cbc.ca

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