The carbon tax must die so climate policies survive

Jan. 29, 2025

The race for Liberal party leadership is on. Former finance minister Chrystia Freeland has announced that if elected Prime Minister, she will get rid of the consumer carbon tax. Former Bank of Canada and Bank of England governor Mark Carney has been cagier about the issue, but may also do the same. 

In a moment where Canada is facing multiple overlapping crises — cost of living, climate, housing and health care — axing the tax is smart politics. But it won’t be enough to slow Conservative Leader Pierre Poilievre’s momentum. To do that, the candidates must focus on a people-centered approach that can help Canadians and the climate.  

The consumer carbon tax — has been a political albatross from the start.  Roughly half of Canadians oppose the tax, according to a recent poll.  No one likes taxes, and Canadians have struggled to understand the rebates (the latest Climate Action Incentive Payments were distributed on January 15th, with an average payout of $280).  

More importantly, research shows that carbon pricing has a limited effect on emissions. Wasting precious political capital on a middling policy isn’t good politics or policy, and Freeland is smart to recognize this.

Following Freeland’s lead, the Liberals (and yes, this applies to the Green Party and the NDP) could use axing the tax as an opportunity to shift away from a technocratic approach centered on emissions to one that focuses on people. The top three issues for Canadians are the cost of living, housing and health care. Tackling these can help the climate too. 

First, a people-centered climate policy should expand the “care economy” — teachers, doctors, nurses, and child and elder care. These low-carbon activities are desperately needed. And they are a major part of our economy: paid care in health and education generates at least 12 per cent of GDP and one-fifth of Canadian jobs. By contrast, the energy sector employs around 3.5 per cent  of the workforce. The phrase “green jobs” often conjures images of people in factories, but care work is green work too. 

Second, Canada desperately needs more affordable housing. The average home price in Canada has risen almost $300,000 in the last decade. In Toronto, the average home price is over $1 million. It’s no surprise then that almost 100,000 people are on the waiting list for affordable housing. 

Though affordable units are regularly available, the numbers pale in comparison to demand.  Buildings and their construction generate roughly one-third of national emissions, making it the third most carbon-emitting sector, after energy and transport. Building affordable green housing will cut emissions and address the housing crisis.

Greenhouse gas emissions per economic sector

Source: Environment and Climate Change Canada (2024) National Inventory Report 1990-2022: Greenhouse Gas Sources and Sinks in Canada.

Third, the government must invest in training for the green economy. We will need roofers, electricians, and construction workers to transform our housing stock, electrify everything as quickly as possible, and rebuild when climate disaster strikes — which will happen with increasing frequency. 

This people-centered approach will require the federal government to steer investments to staff these positions — a real industrial policy for good jobs and services. Most of the debate about greening the economy has so far been about which technologies and goods we should manufacture. But a decarbonized economy will require lots of people — some of whom will need extensive training. The Sustainable Jobs plan is a start, but implementation will be critical. 

These investments in people will yield short- and long-term gains. In the short-term, it provides immediate benefits to Canadians in the form of better jobs, health care and housing.  For politicians, investing in the care economy, housing and training will appeal to voters and address their biggest concerns. These investments will help restructure our economy away from a reliance on extracting and exporting fossil fuels. 

Critics will say a people-centered approach to climate change is too expensive. But not if the bill is compared to unchecked climate change, or the growing social instability that results from shrinking investments in the social safety net. Climate change has cost Canada $25 billion in lost GDP in the last decade — half a year of Canadian GDP. By 2055, that number will grow from $80 to $103 billion. A report released earlier this month by the Institute and Faculty of Actuaries estimates climate change could result in a 50 per cent loss in global GDP between 2070 and 2090. Anyone who thinks that people-centered climate policy is too expensive hasn’t considered the alternative. 

And, there are ways to pay for these investments. In 2023, Canada spent $18 billion on fossil fuel subsidies. Subsidies are nothing less than pure madness: paying industry to destroy the planet (while simultaneously taxing them for emissions, which makes no sense). Canada is also pouring money into tax credits for carbon capture utilization and storage — a technology which has yet to be functional at scale, and will not solve the climate crisis. It is estimated that these credits will cost the government $6 billion through 2028.  

There are more ways to raise revenue for people-centered climate initiatives. The Canada Revenue Agency (CRA) estimates Canadians have as much as $240 billion hidden in tax havens (a loss of up to $3 billion in tax revenue every year). At the same time, the federal government predicts a $48 billion deficit in 2024-25. Ensuring the wealthiest individuals and firms pay their fair share is a first step toward plugging this hole. This includes keeping the capital gains tax hike in place — a policy Freeland has reportedly reversed course on.

Freeland’s instinct to axe the tax is bang on — but it will only work for the climate if it works for people, too. 

Jessica F. Green is Professor of Political Science and the School of Environment at the University of Toronto.  She is the author of Rethinking Private Authority and the forthcoming book Existential Politics: Why Global Climate Institutions are failing and how to fix them.  Bluesky: @greenprofgreen.bsky.social.  

[Top photo: A decarbonized economy will require lots of people — some of whom will need extensive training. Photo by Shutterstock​]