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Economy

Economists miss the point about the carbon tax revolt

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7 minute read

From the Fraser Institute

By Ross McKitrick

An open letter is circulating online among my economist colleagues aiming to promote sound thinking on carbon taxes. It makes some valid points, and will probably get waved around in the House of Commons before long. But it’s conspicuously selective in its focus and unfortunately ignores the main problems with Canadian climate policy as a whole.

There’s a massive pile of boulders blocking the road to efficient policy. They have labels such as “Clean Fuel Regulations,” the oil and gas sector emissions cap, the electricity sector coal phaseout and “net-zero” requirements, strict energy efficiency rules for new and existing buildings, new performance mandates for natural gas-fired generation plants, the regulatory blockade on liquified natural gas export facilities, new motor vehicle fuel economy standards, caps on fertilizer use on farms, provincial ethanol production subsidies, electric vehicle mandates and subsidies, provincial renewable electricity mandates, grid-scale battery storage experiments, the “Green Infrastructure Fund,” carbon capture and underground storage mandates and subsidies, subsidies for electric buses and emergency vehicles in Canadian cities, new aviation and rail sector emission limits, and many more.

Not one of these occasioned a letter of protest from Canadian economists.

In front of that mountain of boulders there’s a twig labelled “overstated objections to carbon pricing” and at the sight of it hundreds of economists have rushed forward to carry it off the road. What a help.

To my well-meaning colleagues I respond that the pile of regulatory boulders long ago made the economic case for carbon pricing irrelevant. Layering a carbon tax on top of current and planned command-and-control regulations does not yield an efficient outcome, it just raises the overall cost to consumers. Which is why I can’t get excited about the carbon-pricing letter. That’s not where help with the heavy lifting is needed.

My colleagues object to exaggerated claims about the cost of carbon taxes. Fair enough. But far worse are exaggerated claims about the economic opportunities associated with the so-called “energy transition” and benefits of reducing carbon dioxide emissions. Some of the latter are traceable to poor-quality academic research, such as the continued use of the RCP8.5 emissions scenario long after it has been shown in the academic literature to be grossly exaggerated, or use of impacts estimates from climate models known to have large persistent warming biases. But a lot of it is simply groundless rhetoric. Climate activists, politicians and journalists have spent years blaming Canadians’ fossil fuel use for every bad weather event that comes along and swinging “climate emergency” declarations and other polemical cudgels to shut down rational debate. Again, none of this occasioned a cautionary letter from economists.

There’s another big issue on which the letter was silent. Suppose we did clear all the regulatory boulders along with the carbon-pricing-costs-too-much twig. How high should the carbon tax be? A few of the signatories are former students of mine so I expect they remember the formula for an optimal emissions tax in the presence of an existing tax system. If not, they can take their copy of Economic Analysis of Environmental Policy by Prof. McKitrick off the shelf, blow off the thick layer of dust and look it up. Or they can consult any of the half-dozen or so journal articles published since the 1970s that derive it. But I suspect most of the other signatories have never seen the formula and don’t even know it exists.

Because if they did, they would know that a major obstacle to emission reductions in Canada is our tax burden. The costlier a tax system, the lower the marginal value of emission reductions and the lower the optimal carbon tax rate. Based on reasonable estimates of the social cost of carbon and the marginal costs of our tax system, our carbon price is already high enough, and probably too high. I say this as one of the only Canadian economists who has published on all aspects of the question. Believing in mainstream climate science and economics does not oblige you to dismiss public complaints that the carbon tax is too costly.

Which raises my final point: the age of mass academic letter-writing has long since passed. Academia has become too politically one-sided. Universities don’t get to spend years filling their ranks with staff drawn from one side of the political spectrum then expect to be viewed as neutral arbiters of public policy issues. As such, the more signatories on letters like this the less impact it will have. People nowadays will make up their own minds, thank you very much, and a well-argued essay by an individual willing to stand alone will likely carry more weight.

Online conversations today are about rising living costs, stagnant real wages and deindustrialization. Even if carbon pricing isn’t the main cause, climate policy is playing a growing role and people can be excused for lumping it all together. The public would welcome insight from economists about how to deal with these challenges. A mass letter enthusing about carbon taxes is no substitute.

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Economy

ESG rankings have no significant effect on investment performance of Canadian public companies

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From the Fraser Institute

By Steven Globerman

Despite claims to the contrary, the ESG rankings of publicly-traded Canadian companies have no significant effect on investment returns, finds a new study published today by the Fraser Institute, an independent, non-partisan Canadian
public policy think-tank.

“While government regulators and some industry executives promote the benefits of ESG investing, there’s no evidence of significant advantages for investors,” said Steven Globerman, senior fellow at the Fraser Institute and author of ESG Investing and Financial Returns in Canada.

Environmental, social and governance (ESG) is a movement designed to pressure businesses and investors to pursue larger social goals. In Canada, due to government securities regulation, publicly-traded companies must disclose ESG-related
information on a range of issues including environmental impact, human rights, and equity and inclusion.

ESG advocates claim that government-mandated ESG disclosures improve the financial performance of companies.
However, the study—the first empirical analysis of the relationship between changes in the ESG rankings of Canadian publicly-traded companies and equity returns— tracked 310 companies on the Toronto Stock Exchange from 2013 to 2022 and found no significant relationship between changes in ESG ranking (upgrades or downgrades) and financial returns, as measured by the price of shares and dividend income.

In other words, advocates for greater ESG disclosures cannot accurately claim—based on Canadian evidence—that requiring companies to provide more information for ESG rankings will significantly affect the financial performance of Canadian
investors.

“Better performance on ESG rankings simply does not translate into better financial performance for Canadian firms,” Globerman said.

  • ESG investing incorporates environmental (E), social (S), and governance (G) considerations into investment decisions. Until recently, ESG-themed investing comprised an increasing share of investments made by professional money managers and retail investors.
  • Financial industry executives and regulators who have promoted ESG-themed investing argue that it will enhance investment performance either by increasing asset returns and/or by reducing investment risk.
  • However, empirical studies, on balance, find no consistent and statistically significant evidence of a positive relationship between the ESG rankings of individual companies or portfolios of companies and the financial performances of those companies or investment portfolios.
  • Most empirical studies have focused on US-based publicly traded companies. To our knowledge, this study is the first to focus on returns to ESG-themed investing for Canadian-based public companies.
  • Using data from MSCI, a leading ESG ratings provider, we estimate the statistical relationship between changes in ESG rankings of companies and changes in equity returns for those companies using a sample of 310 companies listed on the Toronto Stock Exchange between 2013 and 2022.
  • Our study finds that neither upgrades nor downgrades in ESG ratings significantly affect stock market returns.

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Economy

400,000 more Canadians live in poverty now compared to 2020: gov’t report

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From LifeSiteNews

By Anthony Murdoch

A report by the federal government has found that ‘9.9 percent of Canadians, some four million people, live in poverty compared to 6.4 percent in 2020, the equivalent of approximately 400,000 more Canadians.’

Decades of progress in lowering the poverty rate in Canada has been wiped out in the last few years under Prime Minister Justin Trudeau’s Liberal government, one of his own federal departments has reported.

According to Blacklock’s Reporter, a recently released report dated December 11, 2023 by the Department of Social Development “estimates” that “9.9 percent of Canadians, some four million people, live in poverty compared to 6.4 percent in 2020, the equivalent of ‘approximately 400,000 more Canadians,’” and that “[f]uture increases in the rate of poverty could stall progress towards reaching the 2030 poverty reduction target of a 50 percent reduction in poverty versus 2015 levels.” 

The report observed that high inflation in Canada combined with “lagging household incomes” has led to “affordability pressures among many households.” 

While the uptick in the poverty rate is certainly concerning for many Canadians, it may come as little surprise as this is not the first time one of Trudeau’s own departments has warned of such a trend.

In January, the National Advisory Council on Poverty (NACP) observed to Parliament that fast-rising food costs have led to many people feeling a sense of “hopelessness and desperation.”

“Persons with lived expertise of poverty and service providers alike told us things seem worse now than they were before and during the first years of the pandemic,” read the NACP report.  

“We heard that people are worried about the rising cost of living and inflation,” it continued, adding, “More people are in crisis and these crises are more visible in our communities.” 

The damning figures comes as critics, including the nation’s leading taxpayer watchdog, the Canadian Taxpayers Federation, have warned that the Trudeau government’s deficit spending and oft-increasing tax regime has been putting undue strain on the pocketbooks of its citizens.

Previously speaking to LifeSiteNews, CTF federal director Franco Terrazzano urged the Trudeau government to cut spending, balance the budget and “completely scrap” the “carbon tax.”

“More debt means more money wasted on interest charges and less room to cut taxes,” Terrazzano stated, warning that “[i]n a handful of years, every penny collected from the GST (Goods and Service Tax) will go toward paying interest on the debt.”

Under Trudeau, Canadians have seen their overall tax rate go up thanks to the punitive carbon tax that affects all goods and services in the nation. 

Even the Bank of Canada, the nation’s central bank, has taken issue with Trudeau government policy, acknowledging last year that some of its federal “climate change” programs, which have been deemed “extreme” by provincial leaders, are helping to fuel inflation. 

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