Ontario’s climate change strategy: more taxes, spending and economic micromanagement

Ontario’s provincial government recently released its Climate Change Action Plan, consisting of nearly 80 different proposals, subsidies and command-and-control regulations aimed at reducing greenhouse gas emissions.

Unfortunately, the government’s action plan is yet another example of the same misguided approach to economic management that has led to numerous policy failures over the past decade. More specifically, the plan represents another effort to micromanage the provincial economy from Queen’s Park.

If a government wants to decrease emissions, economists almost universally agree that the most efficient strategy is to put a “price on carbon” through a carbon tax or similar mechanism. Further, many economists argue carbon taxes should be “revenue neutral,” meaning they are offset by cuts to other more economically harmful taxes such as the personal income tax to ensure no increase to the overall tax burden on the economy.

An approach that met these criteria, however, would not satisfy the seemingly insatiable appetite of Ontario’s provincial government to spend more money and meddle intrusively in the private economy.

Rather than putting all revenues from its cap-and-trade scheme back into the private economy through tax reductions, the government plans to spend much of the proceeds on a variety of pet projects including initiatives to “support cycling and walking.” Ontario’s climate change action plan is the very model of a tax-and-spend policy approach.

The government is also ignoring economists’ advice by actively interfering in the decision-making of individuals and private companies through a slew of regulations and subsidies to support producers of specific products. For example, the government plans to subsidize electric vehicles to the tune of up to $14,000 per car. The government admits in its own document that these subsides will only yield small emissions reductions.

In short, the government’s climate change action plan marries a tax-and-spend approach to government finances with an active micromanaging approach to regulation and subsidies.

Unfortunately, these features of the climate change plan are representative of the Ontario government’s approach to economic development over the last decade. Consider that the provincial tax burden on Ontarians has increased significantly over the past decade, and yet it still hasn’t been enough to keep pace with the government’s appetite to spend money. The result has been a rapid run-up in provincial debt.

Similarly, on regulatory interference in the economy, the plan represents more of the same for the provincial government. And this is not the first time the provincial government has actively intervened in the provincial energy market.

The 2009 Green Energy Act sought to promote renewable energy in the province through a variety of subsidies, incentives and other centrally-planned measures. Partly as a result, power prices have risen substantially and a recent auditor general’s report showed how Ontario now exports power at a loss and pays two and three-and-a-half times more for wind and solar, respectively, then neighbouring American states.

The government in Queen’s Park has for more than a decade tried to solve Ontario’s economic problems through higher taxes, increased spending and increased regulation of the provincial economy. If this approach worked, the streets in Ontario would by now be paved with gold. Instead, we have become a have-not province neck-deep in debt.

The failures of its approach to economic management to date, however, apparently won’t stop the government from making the same mistakes again through its climate change strategy.