The Clean Air and a Strong Economy section of the federal government’s 2022 budget sinks over $12 billion on climate action measures spread out over four years, while illustrating in the same chapter that a gap of more than $100 billion in annual investment is required to reach net-zero emissions in Canada by 2050.

The government hopes to make up the gap through private investment, and most of the measures tabled in the budget are geared towards incentivizing just that. There is little in the way of investment in public ownership or support for workers.

There is no doubt that decarbonizing Canada’s transportation sector is necessary in the fight against climate change. Right next to the oil and gas industry, the transport sector is the second largest contributor of emissions in Canada and has seen emissions climb without abatement, releasing 185.8 Megatonnes of CO2 in 2019. There is also a major opportunity to induce a shift to decarbonize this sector as petroleum prices reach record highs due to geopolitical trends and major public investments in the infrastructure for electrification.

How do you solve a problem like ZEVs

The federal government has chosen to focus its decarbonization of the transport sector on incentivizing a switch from combustion engine cars to “zero-emission vehicles” (ZEVs). Supply-side and demand-side measures to incentivize this shift are touted at the top of Budget 2022’s climate action measures. Relying on incentives for private sector and consumer investment in ZEVs, however, come with costs and implications that are not always considered.

Large corporate subsidies are being offered to build charging station infrastructure, consumer subsidies are continued to encourage uptake of ZEVs that only wealthier families can afford, and an extensive “critical minerals strategy” is outlined in Budget 2022 to secure energy storage material supply chains. This strategy will have implications for the mining industry, the environment, Reconciliation, and Canada’s foreign policy. Focusing on electric cars as a way to decarbonize fails to take into account far-reaching economic externalities and ignores the higher proportional costs of making the switch for lower-income families.

In particular, the $1.7 billion investment in the Incentives for Zero-Emission Vehicles (iZEV) program demonstrates the short-sightedness of betting on electric cars for climate action. Under this program, only new ZEVs are eligible for the subsidy—it is difficult to re-sell used electric cars due to battery resilience. One of the cheapest new electric cars on the Canadian market, the 2022 Chevy Bolt, is priced at around $38,000 CAD without the $5000 iZEV program. Even when accounting for high prices at the pumps, it is challenging for lower income families to afford a new ZEV, even with the iZEV program, when the comparable 2022 Chevy Spark is priced at $12,000 CAD. Despite this program existing since 2019, only 3.5 percent of new vehicles registered in Canada were ZEVs as of Q3 2020.

A much more efficient use of public money would be to invest in public transit. However, the attention paid to ZEVs in Budget 2022 is gigantic in comparison to what’s available for mass public transit, which completely ignores the latter. Transit systems have been hard hit by the pandemic but have been largely ignored in pandemic recovery and climate action plans, though governments willing to invest in them can produce immediate economic and emissions impacts more affordably. Without building reliable public transit infrastructure, a behavioural switch to more economically and environmentally sustainable commutes cannot be expected. 

In Budget 2022, the federal government is investing just $42.8 million over four years on VIA Rail maintenance centres and will withhold $750 million in transit system pandemic relief money unless cash-strapped provinces and municipalities build new housing. Instead of expanding VIA through public investment, the government has instead proposed private sector partnerships to build high-speed rail after decades of studying its economic benefits and feasibility. Budget 2021, curiously, did announce a “Permanent Public Transit Fund” of nearly $6 billion which was a great start towards a stable source of cash for publicly-owned transit. However, with a federal election between budget announcements, this measure was not included in Budget 2022’s Clean Air and a Strong Economy chapter’s key ongoing actions, despite the size and profile of the previously-announced funding.

A subsidy wolf in climate action clothing

In addition to incentives and subsidies for ZEVs, the federal budget’s climate actions also include big-ticket measures to induce investment in Carbon Capture, Utilization, and Storage (CCUS) and Small Modular Reactor (SMR) technology. Like ZEVs, the promise of these technologies are being prominently presented instead of “off-the-shelf” solutions or alternative technologies such as expanding public transit, ending fossil fuel subsidies, continuing to drop the cost of wind and solar energy, or advancing research on renewable electricity generation such as geothermal.

While CCUS and SMRs are touted by some as necessary for climate action, they are by no means off-the-shelf solutions and could in fact harm climate action efforts. CCUS development has been used as cover for continued fossil fuel subsidies, without substantial change in the number of operating CCUS projects globally, despite decades of investment in the technology. SMR technology has yet to be fully tested and developed, with high upfront capital costs and major concerns regarding the nuclear waste material produced and the proximity of Indigenous communities near proposed projects. Despite these concerns, new investment in these untested technologies has displaced any new or accelerated investments in established renewable energy systems, or in building out electrical grid systems to replace fossil fuel generation with established hydroelectricity.

The focus on technology as an accelerator of economic growth is not unreasonable, however, private investment spurred by new tech that promises higher profit margins, like ZEVs, CCUS, and SMRs, appear to overshadow reliable tech with lower profit margins but higher overall economic and emissions benefits, like public transit and renewable energy. Private-sector incentives to decarbonize the economy could work, but it can feel like gambling on a net-zero scenario with untested tech using public money while the stakes are so high. If Canada is truly to meet its net-zero goals, it needs to depend on more than fledgling technologies and the private sector to make it happen, especially when there are other public policy levers available to be pulled.

There is little doubt that rising prices are of serious concern to many working Canadian families, especially those in insecure and low-paid jobs. Inflation was running at 5.1% year over year in February, double the increase in average weekly wages over the same period. 

War in Ukraine is now adding fuel to the fire of rising energy and food prices, which risks sparking a popular revolt.

The Right-Wing Response

Populist right-wingers like Conservative leadership hopeful Pierre Poilievre and Alberta Premier Jason Kenney are seeking to turn the issue of rising prices to their political advantage. They are supporting an expansion of oil and gas production and new pipelines to counter rapidly rising prices and calling for the suspension of pending increases in the federal carbon tax, a clean fuel standard, and other clean energy regulations.

The right-wing are claiming that environmental measures to deal with the climate crisis are a major cause of inflation. But we do not face an unpalatable choice between saving the planet and lower living standards. Progressives must come up with a serious alternative. 

Policy to reconcile our economic and environmental goals must work to rapidly reduce demand for fossil fuels rather than increase supply through new energy mega-projects which will only accelerate planetary collapse, as highlighted by the most recent IPCC report. 

Moreover, it would take years for new fossil fuel projects and infrastructure to have an impact upon global supply and to lower prices. 

Shifting Our Reliance

The war in Ukraine has further highlighted the vulnerability to peace and human security posed by over-dependence on fossil fuels controlled by non-democratic states like Russia and Saudi Arabia.

An alternative response must be to dramatically reduce our national and global economy's reliance on carbon-emitting fuels through massive investments in energy conservation and renewables. 

From this perspective, rising fossil fuel prices are actually a good thing, at least to a degree. They function like an increase in carbon taxes to reduce demand and increase investment in energy efficiency and alternatives. This transition can create many new jobs.

Further, high oil and gas prices are massively boosting the profits of the oil and gas industry. These can be drawn upon to fund non-polluting technologies and to meet mandated reductions in emissions which companies have hitherto claimed are not affordable without subsidies.

Soaring corporate profits can also be taxed to fund public investments in the energy transition and to cushion the impacts of higher prices on lower-income working families through tax credits like the GST credit, the Canada child credit and the Canada workers benefit. These benefits should be increased and made available to more families. Just as the proceeds of carbon taxes are recycled to households in most provinces, so should excessive corporate profits.

Paying for the Transition

Many right-wingers, notably Pierre Poilievre, claim that we cannot afford major new public investments or larger tax credits since interest rates have to rise to combat inflation. This will increase the cost of government deficits and public debt. The Liberals, too, are saying the cupboard is bare.

But the Bank of Canada recognizes that rising prices are not so much the product of excess demand in the economy as of specific sectoral impacts of the pandemic which will fade over time. They are unlikely to increase interest rates too far, too fast.

Further, the federal government should and can ensure that financing costs for the needed energy transition as well as affordable housing are cushioned from higher interest rates. We should expand public investment banks like the Export Development Corporation to extend low-cost credit and/or equity to desired investments. These banks could be financed in part by the Bank of Canada subject to agreements between the Bank and the federal government. 

Effectively there would be two interest rates - a general one, and a preferred one. Only the former would be manipulated to maintain a reasonably low inflation rate, while essential investments would be protected. Alternatively, commercial and private and investment bank lending could be more closely regulated, for example, by limiting mortgage credit for market housing or by setting different reserve requirements for different kinds of financial assets.

Inflation and rising energy prices are clearly a problem, but they should not be allowed to derail the needed transition away from fossil fuels.

Andrew Jackson is senior policy adviser at the Broadbent Institute.

The world climate conference soon taking place in Glasgow (COP-26) has huge challenges on its agenda. Principal among them are, first, securing the global goal of reaching net zero carbon emissions, along with keeping global warming to no more than 1.5 degrees, by mid-century. Second, adapting to protect communities and natural habitats from increasingly devastating extreme weather events. And third, to reach these goals, mobilizing at least $100 billion per year in climate financing for developing countries.

Every party’s platform slogan speaks to the future they want you to believe only they can bring you. Liberals say, “Forward. For Everyone”. The NDP are “Ready for Better”. The Greens call on us to “Be Daring”.  Conservatives want to “Secure the Future”. Putting slogans aside, most of us are now deeply aware that securing our future is critically tied to the actions we take to reduce climate change over the next ten years.  At the crux of it lies the fate of the oil and gas sector, and the Conservatives remain in dangerous denial of that fact.

Trying to find a silver lining in the current COVID crisis is not easy, but there is a growing realization around the world that the place to look is in the transition to a greener economy.

Media reports say climate change mitigation will play a prominent role in the COVID-19 economic recovery, with the federal government planning to invest in the environment as part of its stimulus spending. Stimulus is a concept associated with John Maynard Keynes, calling for public spending to kick-start the economy. Stimulus was used after the 2008 global financial crisis, but was quickly removed, and the global economy never fully recovered.

As Canada warms twice the rate as the rest of the world, it is in our interest to play a leading role on the global stage to facilitate greater collective action to address climate change. ^[1]

Maybe it was the months of smoke-filled skies or the flash floods following hard on the heels of long droughts. Or maybe it was mountainsides covered in beetle-killed trees or glaciers melting to slivers of ice. Whatever the reason, British Columbia has got the message when it comes to climate change.

Now that Manitoba has joined Ontario and Saskatchewan in opposition to a carbon tax, what are the realistic political options for the federal government?  Economists overwhelmingly support carbon pricing as the most economically efficient way to reduce greenhouse gas emission and combat climate change. But should the federal government now just accept that Canadian conservatives have successfully framed it as a “job-killing tax” whose implementation will “hurt the economy”? Have Doug Ford, Andrew Scheer and other Conservatives been successful in nurturing the suspicion that carbon pricing is just another tax grab by government that will make “ordinary Canadians” worse off? Is the idea now politically dead?