From the Fraser Institute

By Jock Finlayson

Spend time on the websites of Canada’s leading environmental non-governmental organizations (ENGOs) and you will see repeated references to the “energy transition”—the shift away from fossil-fuel energy sources to no- and low-carbon alternatives, to help lower the greenhouse gas (GHG) emissions that lie behind concerns over climate change.

While most countries—albeit not Donald Trump’s America—notionally support the 2015 Paris Agreement goal to limit global temperature increases to between 1.5 and 2.0 degrees centigrade, few are on track to slash their emissions sufficiently to reach that target. Indeed, emissions are still climbing, mainly due to the ravenous appetite for energy in many emerging economies.

Notwithstanding decades of climate change conferences, humanity remains firmly wedded to fossil fuels, which currently supply about four-fifths of global primary energy demand—a share that has fallen only slightly since the late-1990s. Moreover, as Canadian energy scholar Vaclav Smil recently noted, the absolute quantity of fossil fuels consumed by the world has risen by more than half since 1997.

Stupendous amounts of energy are needed to provide electrical power, for heating and cooling, transportation and agriculture, and to support many industrial processes. Today, fossil fuels are ubiquitous in all these areas. Only in the case of electricity have we observed a quantitatively significant move away from fossil fuel energy.

A glance at recent energy supply/demand projections highlights the dominant role of fossil fuels in the world’s energy system. The latest global outlook from multinational giant Shell is a good example.

According to Shell’s 2025 baseline forecast, worldwide demand for energy “will continue to increase as the global population grows and living standards rise.” By 2050, energy demand “could be nearly a quarter higher than in 2024 depending on economic growth rates, energy efficiency gains and the pace of electrification.”

Global oil demand is expected by grow by another 3-5 million barrels per day into the mid-2030s, confounding earlier forecasts of imminent “peak oil” consumption. Shell notes that “petroleum fuels remain affordable and convenient in transport, particularly in long-distance haulage, aviation and marine.” Oil also remains crucial to the petrochemicals sector.

Meanwhile, natural gas use is set to increase into the 2040s at least, with liquefied natural gas (LNG) representing a steadily rising share of the total natural gas market. Natural gas is a principal source of “industrial heat, fuel for power generation and heat for buildings.” It’s also critical to “helping the world move away from coal.”

Significant investments in oil and gas exploration, production, infrastructure and downstream processing “will be required for decades to come.” So much for the argument of Canadian environmental activists that it’s time to starve the oil and gas business of capital.

What are the implications of all of this for Canada?

We are endowed with an almost unmatched abundance of energy riches, notably the world’s third-largest oil reserves and vast amounts of natural gas. Canada is also a global leader in producing electricity from carbon-free sources. And energy plays an outsized role in our economy, directly accounting for one-tenth of GDP and supplying roughly a quarter of the country’s merchandise exports.

As a major energy producer, Canada has well-respected environmental standards and rigorous project approval and permitting processes. These are a long-term competitive advantage.

Even as efforts continue to reduce the carbon intensity of energy use and expand renewable power capacity, a growing world will need prodigious quantities of energy including oil and gas. Canada is well-placed to help meet it.

From the Fraser Institute

By Jake Fuss and Tegan Hill

A group of wealthy Canadians called the “Patriotic Millionaires” recently asked governments in Canada to increase the amount of taxes they pay to “ensure greater fairness” in the system. In particular, the group is calling for a wealth tax and higher taxes on capital gains.

Unfortunately, the Patriotic Millionaires (whose motto is “Tax the rich!”) seem to misunderstand the current distribution of taxes paid by different income groups in Canada and the economic consequences of raising taxes.

The fixation on tax “fairness” (which the Patriotic Millionaires never actually define) is not new in Canada. It was a constant focus of the Trudeau government, which decided to increase “fairness” by increasing the top federal personal income tax rate from 29 per cent to 33 per cent in 2016 and proposing to raise taxes on capital gains in 2024.

These policies, like the Patriotic Millionaires, ignored basic facts about taxes. According to a recent study, the top 20 per cent of income-earning families in Canada paid 54.2 per cent of all federal, provincial and local taxes while earning less than half of the country’s total income (46.4 per cent). These families are the only income group in Canada that pay a larger share of taxes than their share of income.

In contrast, the remaining 80 per cent of Canadian families pay less in taxes than their share of total income. For example, the bottom 20 per cent of income-earning families pay 2.0 per cent of total taxes while earning 5.0 per cent of total income.

Why? Because Canada, like most advanced economies, has a progressive income tax system where government taxes individuals at increasingly higher rates as their income rises. For example, the marginal federal tax rate is 15 per cent on individual incomes up to $57,375 but more than double that rate (33 per cent) on income that exceeds $253,414.

According to the Patriotic Millionaires, Canada needs a “wealth tax,” which taxes a person’s net wealth. But time and time again, wealth taxes have failed to deliver the promised results of proponents. Eight European countries that experimented with wealth taxes have since abandoned them because they were expensive to administer, raised little revenue and imposed enormous costs on their economies. In particular, wealth taxes discourage investment, which is needed to broadly raise living standards and improve prosperity, by prompting people to move their assets away from productive investments (e.g. new businesses) to investments that may be exempt from the tax.

So, if Ottawa implemented a wealth tax, we’d likely see a reallocation of investment away from startups and towards housing (assuming housing remains exempt from the tax). Consequently, companies and investors would have less resources to invest in the technology, machinery and equipment that improve productivity, create jobs and drive higher living standards, particularly for average workers.

The Patriotic Millionaires also want to raise taxes on capital gains, which would have similar negative effects by making it more expensive for individuals and businesses to invest in Canada, leading to stagnant wages and living standards for Canadians.

The Patriotic Millionaires are misguided in their claims about “fairness” in the tax system. High-income earners already pay the majority of all taxes in Canada, and proportionality is one of the only objective measures of fairness with respect to the tax burden. Their policy proposals, if enacted by government, would only harm the economy rather than help it. That wouldn’t be fair to Canadian workers.

Jake Fuss

Director, Fiscal Studies, Fraser Institute

Tegan Hill

Director, Alberta Policy, Fraser Institute