From the Fraser Institute

By Kenneth P. Green

A high-power AI chip uses as much electricity per year as three electric vehicles (and by the way, one EV per household would double residential electricity demand)

According to the Trudeau government’s plan, Canada will reduce greenhouse gas emissions to “net-zero” by 2050, largely by “phasing out unabated fossil fuels.” But given current technologies, virtually all fossil fuels are “unabated”—that is, they generate greenhouse gases when burned. So basically, the plan is to phase-out fossil fuel use, use wind and solar power to power our lives, and transition to electric vehicles.

But this plan is simply not feasible.

In a recent study, Vaclav Smil, professor emeritus at the University of Manitoba, spotlights some uncomfortable realities. Since the Kyoto Protocol was enacted in 1997, essentially setting the world on the path to net-zero, global fossil fuel consumption has surged by 55 per cent. And the share of fossil fuels in global energy consumption has barely decreased from 86 per cent to 82 per cent. In other words, writes Smil, “by 2023, after a quarter century of targeted energy transition, there has been no absolute global decarbonization of energy supply. Just the opposite. In that quarter century, the world has substantially increased its dependence on fossil carbon.” It’s worth noting that Smil is not some “climate denier”—he’s a strong believer in manmade climate change, and sees it as a serious danger to humanity.

In another recent article, Mark Mills, renowned energy policy analyst, boldly declares, “The Energy Transition Won’t Happen,” in part because developments in computing technologies such as cloud computing and artificial intelligence (AI) will require more energy than ever before, “shattering any illusion that we will restrict supplies.” Mills provides some eye-popping examples of how cloud and AI will suck up vast amounts of energy. A high-power AI chip uses as much electricity per year as three electric vehicles (and by the way, one EV per household would double residential electricity demand).

And chip-maker Nvidia, Mills observes, produced some five million such chips in the last three years, and market demand for them is soaring. The appetite for AI chips is “explosive and essentially unlimited.” The data centres that power cloud computing are also mind-boggling in their energy use, each with an energy appetite often greater than skyscrapers the size of the Empire State Building. The largest data centres consume more energy than a steel mill. And the energy used to enable one hour of video (courtesy of all that cloud computing) is more than the share of fuel consumed by a single person on a 10-mile bus ride.

And yet, on the march towards the unreachable goal of net-zero, government policies have forced out coal-power generation in favour of more costly natural-gas power generation, significantly increasing Canadian’s energy costs. Shifting to lower-GHG energy generation has raised the cost of power, particularly in provinces dependent on fossil-fuel power, while the federal carbon tax drives up costs of energy production. And all at a time when significant numbers of Canadians are mired in energy poverty (when households must devote a significant share of their after-tax income to cover the cost of energy used for transportation, home heating and cooking).

No government should base public policy on wishful thinking or make arbitrary commitments to impossible outcomes. This type of policymaking leads to failure. The Trudeau government should abandon the net-zero by 2050 plan and the never-gonna-happen fossil fuel phase-out, and cease its economically damaging energy, tax and industrial policies it has deployed to further that agenda.

From the Fraser Institute

By Jake Fuss and Grady Munro

According to an analysis by economist Jack Mintz, 50 per cent of taxpayers who claim more than $250,000 of capital gains in a year earned less than $117,592 in normal annual income from 2011 to 2021. These include individuals with modest annual incomes who own businesses, second homes or stocks, and who may choose to sell those assets once or infrequently in their lifetimes (such as at retirement)

On Monday, two months after tabling the federal budget, Finance Minister Chrystia Freeland introduced a motion in Parliament to increase taxes on capital gains. On Tuesday, the motion passed as the NDP, Bloc Québécois and Green Party voted with the Liberals. Unfortunately for Canadians, the tax hike will likely hurt Canada’s economy. And the finance minister continues to make misleading claims to defend it.

Currently, investors who sell capital assets pay taxes on 50 per cent of the gain (based on their highest marginal tax rate). On June 25, thanks to Freeland’s motion, that share will increase to 66.7 per cent for capital gains above $250,000. (Critically, the gain includes inflationary and real increases in the value of the asset.)

According to Minister Freeland, the hike is necessary because it will bring in more than $19 billion of revenue over five years to pay for new spending on housing, national defence and other programs. This claim is disingenuous for two reasons.

First, investors do not pay capital gains taxes until they sell assets and realize gains. A higher capital gains tax rate gives them an incentive to hold onto their investments, perhaps anticipating that a future government may reduce the rate. Individuals and businesses may not sell their assets as quickly as the government anticipates so the tax hike ends up generating less revenue than expected.

Second, the government does not have a revenue problem. Annual federal revenue is increasing and has grown (nominally) more than $185 billion (or 66.2 per cent) from 2014-15 to 2023-24. Before tabling the budget in April, the government was already anticipating annual revenue to increase by more than $27 billion this year. But the government has chosen to spend every dime it takes in (and then some) instead of being disciplined.

Years of unrestrained spending and borrowing have led to a precarious fiscal situation in Ottawa. If the government wanted to pay for new programs, it could’ve reduced spending in other areas. But Minister Freeland largely chose not to do this and sought new revenue tools after realizing this year’s deficit was on track to surpass her fiscal targets. Clearly, raising taxes to generate revenue was unnecessary and could’ve been avoided with more disciplined spending.

Further misleading Canadians, the Trudeau government claims this tax hike will only increase taxes for “0.13 per cent of Canadians.” But in reality, many Canadians earning modest incomes will pay capital gains taxes.

According to an analysis by economist Jack Mintz, 50 per cent of taxpayers who claim more than $250,000 of capital gains in a year earned less than $117,592 in normal annual income from 2011 to 2021. These include individuals with modest annual incomes who own businesses, second homes or stocks, and who may choose to sell those assets once or infrequently in their lifetimes (such as at retirement). Contrary to the government’s claims, the capital gains tax hike will affect 4.74 million investors in Canadian companies (or 15.8 per cent of all tax filers).

In sum, many Canadians who you wouldn’t consider among “the wealthiest” will earn capital gains exceeding $250,000 following the sale of their assets, and be impacted by Freeland’s hike.

Finally, the capital gains tax hike will also inhibit economic growth during a time when Canadians are seeing a historic decline in living standards. Capital gains taxes discourage entrepreneurship and business investment. By raising capital gains taxes the Trudeau government is reducing the return that entrepreneurs and investors can expect from starting a business or investing in the Canadian economy. This means that potential entrepreneurs or investors are more likely to take their ideas and money elsewhere, and Canadians will continue to suffer the consequences of a stagnating economy.

If Minister Freeland and the Trudeau government want to pave a path to widespread prosperity for Canadians, they should reverse their tax hike on capital gains.