Federal carbon tax hike will hammer already-vulnerable Ontarians

A new study’s calculations indicate particular hardship for the manufacturing sector based largely in southwestern Ontario

By Elmira Aliakbari
and Jason Clemens
The Fraser Institute

As Ontarians in the southwestern region are well aware, the last 15 years have not been kind economically. In many ways, this part of the province never recovered from the 2008-09 recession.

Now, the federal government’s plan to increase its carbon tax to $170 per tonne from the current $30 per tonne will impose yet more hardship on this already battered region.

Elmira Aliakban
Elmira
Aliakbari

According to a new study, the higher carbon tax will cost Ontario more than 86,000 jobs and cause the province’s economy to contract by 1.9 per cent ($15.2 billion in today’s dollars). The study’s industry-level calculations indicate particular hardship for the manufacturing sector based largely in southwestern Ontario.

Over the last 15 years, no other region in the province has been hit harder than southwestern Ontario. Another recent study of median household income underscored the economic malaise in the region. Windsor’s median household income went from 12.1 per cent higher than the national average in 2005 to 4.0 per cent below the national average in 2015. Windsor also fell from having the 10th highest median household income among the 36 largest metropolitan areas in Canada to 25th highest. This 15-place fall in the rankings was the largest decline of any metropolitan area in the country.

The region’s other major metropolitan area, London, fell from 15th to 27th for median household income, the second-largest decline.

The decline in manufacturing explains part of southwestern Ontario’s economic woes. Manufacturing employment peaked in 2004 at 1.1 million but declined by more than 15 per cent to 939,000 by 2007, just before the 2008-09 recession. By 2010, manufacturing employment in the province, which is concentrated in the region, dropped to 763,500.

Jason Clemens
Jason
Clemens

There’s been no appreciable recovery.

Of course, rising electricity prices, largely caused by poor provincial energy policy, helped drive the decline. A technical analysis completed in 2017 concluded that about 64 per cent of lost manufacturing jobs in Ontario from 2008 to 2015 were linked to higher electricity prices. Studies in 2014 and 2018 concluded that the province’s subsidies and mandated use of renewable energy sources were at the heart of the electricity price increases.

Consider, for instance, the finding from a 2018  study, that the Global Adjustment (GA), a surcharge on electricity bills used to fund above-market fixed contracts with renewable energy providers and conservation programs, increased by 70 per cent between 2008 and 2016. Renewable energy sources accounted for less than seven per cent of electricity in the province but constituted almost 30 per cent of payments from the GA.

Between 2005 and 2016, while many of Ontario’s manufacturing competitors (including Michigan and Indiana) increased the shares of their economies linked with manufacturing, Ontario experienced a 5.1 percentage-point decline. Higher electricity prices largely driven by poor energy policies from the provincial government dramatically eroded the competitiveness of Ontario’s manufacturing sector.

And now, the carbon tax increase from the government of Prime Minister Justin Trudeau promises more hardship, particularly for Ontario’s manufacturing sector – despite the federal government’s claim that the higher carbon tax will have “almost zero impact” on the economy. (The government refuses to release any detailed analysis of the effects of the higher carbon tax.)

Southwestern Ontarians should understand how poor provincial policies have harmed the region’s economy over the last nearly two decades, and how the federal government’s planned higher carbon tax will impose more economic costs.

Elmira Aliakbari and Jason Clemens are economists with the Fraser Institute.

Elmira and Jason are among our Thought Leaders. For interview requests, click here.


The views, opinions and positions expressed by columnists and contributors are the authors’ alone. They do not inherently or expressly reflect the views, opinions and/or positions of our publication.

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