?Ram maxim: Himnm. mun April. 199: \DL pt aw-Hill IOL - 045 Carbon Dioxide Emissions and Federal Energy Policy: A Discussion of the Economic Consequences of Alternative Taxes Cumulative Reduction In Carbon Dioxide Emissions and the Associated Cost (Reduction) In GDP (Million tonnes and billion 1981 dollars at factor cost. 1990 to 2005) 1000 -,-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~--,., • Carbon Tax Extreme 900 ./"' .,/"' 600 • G~6derate * • Ga813uzzler Moderate Motorfuel .,/"' 0 100 Tax Moderate 200 300 400 500 600 700 Cumulative Reduction in GDP Diagonal Line Represents $1000 Per Tonne CO 2 Reduction Cost ···:•:•:···· . • ,.;........... : .:::.:·=?::;:;:;:·.:·:;.-:-:'.::·::::;::-:.:::,.:. :;::::::;:>'.?:::::::;::· ·;=:-:·::;·::;:::::;·· :-·;, .-. -:-:;-;.,,,;··:::;.::::::::;:;-:·:::::· :-:-:.··-;-·-:·-·,:-.-::::::::{'.'.,:-· Prepared for Imperial Oil Ltd. by • James A. Osten George Vasic David West DAI/McGraw-Hill March 18, 1991 800 900 /9rJO Contents 1 Execut ive Summary 5 Introduction 6 Methodology Macroeconomic Assumptions Regional and Industrial Notes Energy Assumptions 13 Macroeconomic and Energy Policies 13 Macroeconomic Policy 16 27 28 28 29 31 Policy Assumptions Econom ic Impact s Regional and Industria l Impacts Energy Results Carbon Dioxide Results Reference Case 7 Scenar io Assumptions 7 8 9 9 27 Goods and Services Tax Energy Policy 33 Gas Guzzler Tax 34 34 34 35 37 Policy Assumptions Econom ic Impacts Regional and Industria l Impacts Energy Results Carbon Dioxide Results 39 Motor Fuel Tax 40 40 40 41 43 Policy Assumptions Econom ic Impacts Regional and Industria l Impacts Energy Results Carbon Dioxide Results 17 Carbon Tax 18 18 18 20 23 24 Policy Assumptions Economic Impacts Regional and Industrial Impacts Energy Results Carbon Dioxide Results Comparison of Results 45 Conclusions 46 Comparison of Regional and Industrial Impacts Across Scenarios 49 Appendix Executive Summary Carbon dioxide is produced in varying amounts by every economic act ivity in Canada. The Canadian government, in cooperation with other nations, is committed to reducing the potential environmental consequences of greenhouse gases such as CO 2. An effective control policy would cause carbon dioxide and other greenhouse gases to diminish with a minimum effect on the day-today operation of the Canadian economy. This study analyzes the economic consequences of curbing CO 2 emissions through the proposed introduction of both Carbon and Gas Guzzler Taxes, and increases in the newly introduced Goods and Services and Motor Fuels Taxes. A Carbon Tax causes the most direct impact on CO2 since the tax is in proportion to the emissions. Electric utilities would have considerable incent ive to build new nuclear or hydro plants , since these sources produce no CO2. The Canadian oil and gas indu stry, which is heavily concentrated in Nberta, would be harshly pen alized. The paper, chemicals and primary metal s indus tri es would face severe cost increases. Producti on of coal would falter while heavy oil would virtu ally cease to be a usable resource. Those provinces with extensive nuclear and hydro power would experience an accelerated switch to electricity, especially for electric heat. The Gas Guzzler Tax falls on the production and sale of motor vehicles in the commercial and family-size cate gories. Since Ontario produces many such veh icles , the greater onus of the tax is borne in that province . In general, manufacturing industries fare poorly. Nso, CHART 1 Cumulative Reduction In Carbon Dioxide Emissions and the Associated Cost (Reduction) in GDP (Million tonnes and billion dollars ($1981) at factor cost. 1990 to 2005) 1000 --+- 1975 1980 TX25 = Motor Fuel Tax Moderate TX100 = Motor Fuel Tax Extreme ......:::. :.... ;.:,:-:. ...·· .. ·. .·.·.-:.;- 1985 1990 GUZ30 = Gas Guzzler Moderate GUZ100 = Gas Guzzler Extreme :;·;-·;_ C02LOW = Carbon Tax Moderate CO2 = Carbon Tax Extreme GST10 = GST Mo d e rate GST2 5 = GST Extreme .-;-.'.-;- electricity would require a major contribution by the federal government to induce provinces such as Saskatchewan , Manitoba and British Columbia to add nuclear capacity. Investment The base case investment provides for the energy, infrastructure and producing capacity of an economy growing by nearly 3 percent per year. The base case capital stock is nearly fully employed. with both domestic demand and exports of Canadian goods growing. The pattern of growth is very much a reflection of Canadian traditional strengths in resources and includes several megaprojects. A major reduction in allowed CO2 emissions would impact the investment profile in two ways. First; the megaprojects such as O_SLO and Hibernia could be canceled. Development of large scale oil projects is not necessarily linked to Canadian demand for petroleum products, so these projects could proceed if world oil prices are high enough. A concerted effort to reduce world oil consumption would probably chill the economic prospects for development of either or both of these projects. A program to reduce oil and coal consumption would lead to the closing of refineries and coal mines-a significant reduction in the capital stock of Canada. Con - 14 Imperial Oil 1995 verting railroads to electric ity would cause a reducti o n in the demand for diesel locom otives. Change of ec ono mic activity from coal and oil to ele ctricity would cau se considerable investment by th e util ity sector. Nuclear plants costing on the order of D arlingto n would be add ed, while the existing coal plants would presumably remain in the rate base but not be used . In a real sen se. the loss of wealth caused by cap ital tha t is retired be fo re its useful life ends represents a lar ge loss of wealth fo r Canada. Second , the need for clean energy resourc es such as na tur~l ~as'. nuclear and hydro power will result in a maj o r ~hift m mvestments from the base case. While these · ed b mvestments may be subsi·d 12 y govern m ent program s. the overall cost to the economy will be d epen d ent up o n h · 1 t e re at1ve cost of these new sources of energy. ~o a_large _extent, these _e~~rgyres o urce s are capital in. ens1ve, with enormous imtial inve stmen ts low o erat mg cost~, and fairly long pay back peri ods ., Th p fl o~ new mvestments implies that the C . e pro , e . will receive a stron .. f anad1an economv 1 a considerable incr!ami ~a :tlmu l~s fro m investment a'nd ment of debt. se m orr owmg and ultimate repa yThere are two aspects of the . ment. including the loss of energy res o~rces mvesteconomic infrastruct part of Ca nadian current . ure and the la . required in new technol . rge scale investments ogies. In term s of the economic Macroeconomic and Energy Policies CHART 2 Utility Fuel Cost Increases With Carbon Tax - 8100C>--T-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~, 70CX}--+- - CO2 ~30 GST10 &11Rbo GST25 310()()--+- 2CXX>---+- 1975 1980 TX25 = Motor Fuel Tax Moderate TX100 = Motor Fuel Tax Extreme 1985 1990 GUZ30 = Gas Guzzler Moderate GUZ100 = Gas Guzzler Extreme impacts of a carbon dioxide tax, provision is made for effects on potential GDP, delay or cancellation of megaprojects, and expanded investment in new areas . Ultunately, the economic implications of CO2 taxes will be evident in Canadian international competitiveness. If investments offer poor returns and lead to losses in international markets, the overall economy will suffer. International Competitiveness Canadian international competitiveness is concentrated m resource-based energy intensive industries such as metals, pulp and paper, and energy. A major consequence of raising the price of energy is a loss in mternational competitiveness. Another effect of high taxes on energy consumption is increased inflation. The full effect of higher inflation would lead to a combination of higher interest rates and a depreciation of the exchange rate. In the moderate policy cases. the assumption of a cooperative international regime is made. Most countries would impose policies symmetric to those in Canada. In 1995 2000 2005 C02LOW = Carbon Tax Moderate CO2 = Carbon Tax Extreme 2010 GST10 = GST Moderate GST25 = GST Extreme particular, the U.S. would mirror Canadian polices so that there is little effect on the exchange rate. In the extreme policy regime, Canada goes it alone. High taxes on energy consumption are borne by the manufacturing and resource sector. Canada becomes less competitive in international markets. A decline in international competitiveness would lead to depreciation of the Canadian dollar. This is accomplished in the model by fixing the Canadian dollar at its real exchange rate. International considerations are critical. Note that if the U.S. reduced CO2 emissions by 30 percent it would delay the doubling of world atmospheric CO2 concentration from 80 to 85 years at a cost to the U.S. of 150 to 200billion per year. The benefits to the U.S. would be minimal since mainly the agricultural sector and low lying tidewater regions are affected by global warming. The Third World, which has a major portion of its economy in the agricultural sector, has much more serious economic exposure to global warming. Thus the assumptions we make on international cooperation are of the greatest consequence for CO 2 emissions and global warming. February 1991 15 Macroeconomic and Energy Policies .. CHART 3 Carbon Dioxide Emissions by Fuel Type, Electricity Consumption Adds CO2 12 (I) 8 :i 0 .[ ~ -i~~~~~~~~~~~~~~~~~~~~~--, CE 6,50()00--lf- 8@8 C02LO %!td8° GST25 --- CO2 -- 450()00--lf- 1975 1980 TX25 = Motor Fuel Tax Moderate TX100 = Motor Fuel Tax Extreme 1985 GUZ30 = Gas Guzzler Moderate GUZ100 = Gas Guzzler Extreme 20 10 2005 1995 1990 GST10 = GST Moderate GST25 = GST Extreme C02LOW = Carbon Tax Moderate CO2 = Carbon Tax Extreme ties, which account for two-thirds of the impact, reduce emissions by 32 million tonnes. Comparison of Results Thus , the carbon tax is primarily a tax on coal and electric utilities . Most of the economic impact, however, is borne by other sectors. A comparison of the results of the carb o n tax scenari os with those of the GST, motor fue ls tax. and gas guzzl er tax scenarios can be found in the Append ix. CHART 5 Utility CO2 Emissions Are Lowest for Carbon Tax ~ "' ~ ~ 140000--+- F l5 -.-.i!!l .. ~ ~~11111-i,.;"='"..:-' - ••. -;.. ------: --Wna _.'7~.-_.-- ,,.. ,a , z19-..a ..._ -..._ - ' "&61fito ··-----~~ ',··--·- ......... 120000-+-- I=100000--+- ~ ..__ ~ - 1975 1980 TX25 • Motor Fuel Tax Moderate TX100 • Motor Fuel Tax Extreme 24 Imperial Oil 1985 1990 GUZ30 "' Gas Guzzler Moderate GUZ100 = Gas Guzzler Extreme 1995 co 2LOW 2000 C0 2LOW ._ -, 2005 = Carbo .,., co 2 = Carbon.,. nE,a.xMOderate ,ax xtreme - ._._ GST25 CO2 2010 = GST Moderate GST10 GST25 = GST Extreme Carbon Tax CHART 6 Transportat ion CO 2 Emissions 170000- -+- TXlOO CO2 1975 1980 TX25 = Motor Fuel Tax Moderate TXl OO = Motor Fuel Tax Extreme 1985 1990 GUZ30 = Gas Guzzler Moderate GUZl 00 = Gas Guzzler Extreme 1995 2000 2005 C02LOW = Carbon Tax Mode rate CO2 = Carbon Tax Extreme 2010 GST 10 = GST Moderate GST25 = GST Extreme February 1991 25 Goods and Services Tax separately. reflecting the GST rate and other federa l excise taxes. The G G is a me hani m for mcrea.smg a.xau n "'i .::..x'1.Srwu mg mdu trie that are lu.mate ly enei,,_ · : nsumers. All-form of energy ·ou ld be :axe . The G ST a very poor lever for addreSSU1g CO: re.... :.ion. uc it d e rai e che very important policy -:1.!esuon oi. o · e money will be spent. Government iaxe in o er o spend. Increases in the GST imply an enormous incr ease in the capability of government o in ervene in emironmental matters. Tax revenue coul oeu..,ed o plant crees. phase out chloroflurocarbons CFC ,. and -uppo rt research and development of low eIIl.15Sion echnologies. Government cou1 aL'-0invest in efficient energy use. Conservation an de man management are already active areas fo r government poliCies. Electric utilities are und enakmg larg e-sca le emand management and passmg th e costs along to rat e payers. Tax revenue could also be used fo r lowering income tax rates or reducing the defiCit. The GST applies to all fo rms of energy electricity, coal , petroleum products and natural gas. Not all petroleum products are duectl, included. Motor fuels are taxed Conservation and price init iatives in the GST case account of over half of the carbon dioxide emissions reductions . The largest single source of CO2 emissions reductions occurs in the ele ctric ut ility sector. Two op posing trends are at work in the produc tion of electricity. Because the GST raises electricity prices. consumers substitute fossil fuels for electric ity. This increased use of fossil fuels produces an additional 6 million tonnes of CO2. In the electric utili ty sector, however. the substitution of nuclear for coal accou nt s for near ly one third of total CO2 reduction. This reduc tion more than offsets the additional CO2 emissions produced by increased fossil-fuel use in the consumer sector. Reduced economic activity, although significant, accounts for only 18% of the total CO2 emissions red uctions. Personal income is over 2.6% lower in real terms for the 1990 to 2005period as a consequence of the tax . In the extreme scenario, about 16.9 million tonnes of carbon dioxide reduction is attributed to reduced economic activity, which amounts to a 3% reduction in total carb on dioxide emissions and accounts for about one fifth of the reduction in carbon dioxide. Policy Assumptions Increases in the GST raise government tax revenues by nearly $3.5 billion per 1 percent . Increases in the GST are :..-,•: •:•.• .:•. TABLE 1 Increased Use of Nuclear Power Explains 31 % of Carbon Dioxide Reduction, While Large Electric Price Increases Cause Switching To CO2-Producing Oil and Gas /Percent) ~ Reduced Economic ~ Conservation & 7% 2% 9% 8% 5% 42%(price) (6%) (price ) 2% (NGV) 31 o/o(Nuclear) 55% 27% Efficiency Fuel Swi1cbioo Residential . Commercial. lnduStnal Transportation ElectnCUtility TOTAL 18% -:-·. February 1991 27 Good ph,,sl ·d , nd S1..rv1e,os Tax 111~"" 1111v w11h I per u: nt pe r year m th e mode rate .ind ,, p c n.:c.; nt p l' r yc; 1r m Lht· (;. IS· extr eme Mod emtl3 Ca case. Extreme Case (Percent) 1991 7 1992 1993 8 9 1994 1995 10 10 10 1996 2005 7 9 11 13 15 increases by 1 percent each year to reach 25 percent by 2005 Economic Impacts Moderate Case .... 1.9a5 2QQQ - 0.9 1.4 - 0.0 1.5 0.0 0.0 -1 .8 2.6 18.5 o.o 1.0 0.9 - 1.4 12. 1 ~ 0.1 1.4 0.1 -0.2 -6.4 4.0 28 .0 In the moderate case, inflation increases by roughly 0.5 percent from 1992 to 1994; subsequently it returns to base values, since there are no additional increases in the GST. .... Real GDP growth drops by roughly 0.4 percent from 1992 to 1994; frr .., 1996-2005the level of real GDP is virtually equ. the base case. .... Higher investment . and government expenditure (due to respending) offsets weaker consumer and housing sectors, and induces the deterioration in the trade balance. Extreme Case .... 1SS5 .2QOO 2.005 -2.0 4.4 3.7 1.5 3.0 -2.1 33.5 -0.3 7.7 2.5 1.5 -7.4 +6.3 86.1 -0.4 12.5 0.6 1.1 -21.0 +80 191.4 In the extreme case, inflation rises by 1.3 percent each year to 1995,and by an average 0.8 percent 28 Imperial Oil Real growth drops by an average 0.8 percent in each of the first three yea rs, and remains be lo ;.r base values to 2005. The higher interest rates th roughout the penod strengthen the dollar , which he lps moderate the inflation impact. However .the lower import co ts help boost investment (part icular ly in machl.Ilery and equ ipment, but this also leads to a sharper drop in the trade balance. As m the mode rate case, consumer spen ding is reduced by more than GDP (despite a red uction in the per sonal savings rate ) as is residential investment. The negative impact of a higher GST is spre ad re lauve !y evenly across industries and regions , reflect ing t he broader nature of the tax compa red to the other poli cies. Real aggregate output is down a cumulative 4.5 TABLE 2 Cumulatlve Declines In Industrial Output and Employment for Severe GST Case % Decline (90-2005) ~ GNP at Factor Cost Total Goods Output Mining Output Petroleum and Coal Output* Chemicals Output Transportation Equipment Output Pulp and Paper Output Housing Starts Employment Unemployment Rate** Real Disposable Income .AJ..ber:laQmanQ 4.5 6.3 5.6 6.2 2.9 3.2 7.1 16.1 0.8 0.7 2.6 4.8 5.7 5.8 6.2 2.5 2.6 6.6 26.8 3.7 1.9 7.0 47 6.8 55 6.2 30 34 71 23.0 2.1 09 14 Cumulative Declines In Industrial Output and Employment for Moderate GST Case % Decline (90-2005) (Percent difference from base, except as noted) Real GOP CPI Level Exchange Rate (U.S. Cents) Interest Rates (1 percent) Trade Balance ($billion) Business Nonres. Investment Direct Revenue Impact ($billion) in Regional and Industrial Impacts (Percent difference from base. except as noted) Real GDP CPI Level Interest Rates ( percent) Exchange Rate (U.S. Cents) Trade Balance ($billion) Business Nonres. Investment Direct Revenue Impact ($billion) thereafter . Th e CPI 1s 12.5 percent higner than the base case by 2005. National GNP at Factor Cost Total Goods Output Mining Output Petroleum and Coal Output Chemicals Output Transportation Equipment Output Pulp and Paper Output Housing Starts Employment Unemployment Rate•• Real Disposable Income l .7 2.1 1-6 2.2 1.2 0.6 2.0 4 .4 0.2 0.2 l .1 1.6 1.7 12.2 10 0.4 1.7 6.6 0.7 0.4 1.7 18 2.4 15 2.2 13 0.7 2.0 6.2 0.6 0.4 09 * Percent declines reflect rel . · output in base case atively constant share of regional **Expressed as the.average annual increase . .•,... ...:·.;::· ..; ·'.•: .:::::::::::::· ;.;::· ;:;:;:::. Goods and Services Tax percent relative to the base case over the 16-year period of the simulation. pact. As a result, some provinces will appear relatively more attractive and will therefore draw a greater proportion of internat ional and inter-proVU1cial migrants. Since none of these scenarios affect the total number of births or deaths or total internat ional immigration, then some provinces will necessarily experience absolute mcreases in the level of migration and population. These gains in turn will lead to increases in housing starts and some other essential services, mitigating some of the negative impact of the increased tax in any of the scenarios. Ontario suffers one of the greatest declines, particularly in the extreme scenario. with aggregate output down 4.7 percent. This is the result of a cumulat ive 7.2 percent drop in national manufacturing output. with Ontario's relatively large manufacturing sector bearing the lion's share of that decline. The higher unemployment rate and lower disposable income growth of these scenarios result in a dramatic decrease in migration into Ontario. As a result, population in Ontario is down in bot h GST scenarios by a cumulative 0.2 percent and 0.8 percent in the moderate and extreme cases, respectively. As a result, the province suffers a striking 23 percent reduction in housing starts (approximately 225 thousand units) over the 16-year period. The impact of the extreme GST scenario on Quebec is a good example of this phenomen o n. Aggregate output in Quebec is down a cumulative 3.5 percen t relative to a national decline of 4.5 percent. Unemployment rates and disposable income growth deteriorate less in Que bec than elsewhere in the nation. As a result, Quebec enjoys a stronger rate of migrat ion than in the base case. resulting in a cumulative 2.6 percent increase in population and a 7.4 percent (or 41 thousand units) improvement in housing starts. Although the level declines in population and housing starts are smaller in Manitoba than in Ontario, the percentage declines are more significant; Manitoba's population and housing starts drop a cumulative 4.5 percent and 34 percent, respectively, relative to the base case. This reflects the higher sensitivity of migration in Manitoba to the economic environment: a smaller deterioration in disposable income growth and unemployment rates will cause a larger relative reduction in migration in Manitoba than in Ontario. Energy Results The GST causes a pronounced shift from electricity to other fuels. The electric utility sector incurs the major impacts from the GST. The tax affects prices in three ways: a direct increase; a lowering of demand from lower economic activity; and much higher cost s related to adding new nuclear stations . Electricity demand is down nearly 25 percent in the extreme case compared with the Finally, it is also noteworthy that although aggregate real output is down in all regions for all scenarios, some regions will bear a relatively smaller burden of the im- :•:• .··.. .... ::,,• .. ·•·•·•· • CHART 1 Electricity Prices Are Highest for GST ..-·· ••• / .. .. ...--.,- -- .. -- ., •••• c:-- 1975 1980 TX25 ,. Motor Fuel Tax Moderate TX100 • Motor Fuel Tax Extreme 1985 ,,,------- -- GUZ30 = Gas Guzzler Moderate GUZ100 = Gas Guzzler Extreme 1995 - CO2 ••---=-, _--------- •••• .. - ~-- .,.,.- 1990 GST25 2000 -- - ~ zi?e,... 2005 C02LOW = Carbon Tax Moderate CO2 = Carbon Tax Extreme GST10 ~ w 2010 GST10 = GST Moderate GST25 = GST Extreme February 1991 29 oods and Services Tax HART El ctrlclty Demand Is Lowest for 25 Percent GST 'w REFEREN E 2400---4- .,;,,. _,, ····----------···· .. -..- GST25 •• 1975 1980 TX25 = Motor Fuel Tax Moderate TX100 = Motor Fuel Tax Extreme 1985 1990 GUZ30 = Gas Guzzler Moderate GUZ100 = Gas Guzzler Extreme 1995 2000 2010 2005 co2 LOW = Carbon Tax Moderate CO2 = Carbon Tax Extreme GST10 = GST Mode rate GST25 = GST Extreme .. ·,,·, Reference Case. Electricity prices are up substantially, much more than just a 25 percent increase associated with the GST. There is more inflation in general in this scenario. Inflation originates in all goods and services cover~d by the tax rather than in oil and gas. In fact, real oil and gas prices are actually lower in the GST cases th~n in the Reference Case. This encourages a substantial subtitution of oil and gas for electricity in the residential TABLE 3 Energy Price Increases Are Dominated by the Goods and Services Tax (Dollars per g1ga1oulein 2005) CO2 Content (Tonnes/ fum LFO HFO Industrial Natural Gas Canada Ontario Ieraiculel 73.11 Reference Case Extreme ~ 80.65 17.47 12.06 20.17 13.99 49.46 49.46 12.85 13.87 14.57 15.66 94 2 101.68 1.74 1.85 3.61 2.04 2.17 3.27 23 .33 33.96 ElectricUtility Coal Alberta Suk. Canada Elec:tricity 30 Imperial Oil sector and further contributes to lowering electricity demand. Toe GST case also has perverse effects on carbon dioxide emissions, small car sales, and petroleum demand. Residential and Commercial CO2 emissions are higher in the GST cases because of the substitution of oil and gas for electricity. Small cars have no particular advantage over large cars, since motor fuel tax changes are minimal and other factors such as unemployment and income levels have a pronounced influence. Overall petroleum and natural gas demand trends follow those of the economy. The GST tax has a particularl y noticeable negative effect on industrial output and tru ck fuel. Electricity demand is the lowest of all eight cases. Consequently, the CO2 emissions in this case are nearly as low as in the carbon tax case. The correspondence of energy demand and carbon dioxide emissions is very close across all tax scenarios. The GST increases to a 25% rate in the extreme case. compared with a 7% rate in the Reference case. All energy prices are increased accordingly. The weighted average Canadian price for some energy sources such as coal or natural gas show a minimal increase. This is because the high-cost provinces are reducing demand much faster than the low-cost provinces. The high GST m~reases the price of Alberta coal by only $0.30 per gigaJoule. The price increases for natural gas and petro- Goods and Services Tax C HART 3 Natural Gas Demand Is Lowest for Carbon Tax and GST 1975 1980 TX25 = Motor Fuel Tax Moderate TX100 =- Motor Fuel Tax Extreme 1990 1985 GUZ30 = Gas Guzzler Moderate GUZ100 = Gas Guzzler Extreme leum products run to several dollars per gigajoule, while those for electricity amount to even more. Energy Demand The carbon tax and associated reduction in economic activity decreases energy demand by about 7% by 2005. The residential and commercial sectors, which are highly dependent upon electnc1ty , are hit the hardest by the extre me GST. Energy demand declines by 8% to 9% m these two sectors, while CO2 emissions actually increase. The GST moderately affects industrial and transportation energy demand. The GST is designed to be relatively neutral, and as such is passed through to the ultimate consumer. Also, industrial exports would receive a rebate from the GST. Thus the incidence of the GST is focused more on consuming sectors and less on production. .. .... ·•·. '. ' ,'°,; .... ;: TABLE 4 1995 2000 C02LOW = Carbon Tax Moderate CO2 =- Carbon Tax Extreme = GST Mode rate = GST Extreme Carbon Dioxide Results Carbon dioxide emissions are reduced by 15% in the extreme GST scenario, compared with the Reference case. The residential and commercial sect ors sh ow an 8% to 9% reduction in demand in the GST case, but also show interfuel substitution from electricity to fossil ···. ··:· . •. TABLE 5 Carbon Dioxide Emissions Reductions Are Concentrated In the Electric Utility Sector In the Extreme GST Case ~ Reference Commercial Industrial Transportation Own Use Total GST10 GST25 (Million tonnes of carbon dioxide) (P9ta,oules) Residential 2010 Interrnodal shifts in transportation are small since there are no significant relative price effects o n the tra nspor tation sector . All petroleum product pric es are increased by about the same amount. Consumer based transportation-road and air-are affect ed by the drop in income and rise in total taxes. Energy Demand By Sector ~ 2005 Casa 1408 1049 4412 2545 1109 10523 Extreme QSI 1279 967 4020 2442 1071 9779 Pitfeceoce fel:cent 129 82 392 103 38 742 92% 7.8% 8.9% 40% 3.4% 70% Residential Commercial Industrial Transportation Electric Utility Total Share (%) Economic ~ Conservation 0. 1 0.4 6.2 2.2 1.4 3.8 2. 1 8.1 16.9 18% Inter Fuel Aoc Erica Sutistitutico To!al 49 38 .9 51 .2 (4 .5) (1.0) (0 .7) 14 28 .9 24.1 (2.2) 0.8 93 8.4 55% 27% 100 % 75.9 92.1 February 1991 31 Goods and Services Tax ~uels. Thus the CO2 emissions in these sectors actually increase. The in?us~rial and transportation sectors show a modest reduction m CO2, approximatley in line with their mod' est reduction in energy demand. 32 ImperialOil Reduced electricity demand accounts for over half of the decrease in carbon dioxide em issions . Th e switch fro m coal to nuclear fuel accounts for abou t·o ne th ird of the decrease in carbon dioxide in the utili ty secto r. Gas Guzzler Tax The transportation sector contributes about 30% of total CO2 emissions. Since the growth trend in CO2 emissions is over 30% by 2005, the transportation sector by itself will only have a small impact on total C02-15 yea:s_ of growth exceeds the transportation sector total. Pohc1es such as the gas-g uzzler tax that are directed at reducing total CO2 emissio ns by focusing on the transponation sector will be only mildly effective . More to the point, the gas-guzzler tax seeks to reduce CO2 emissions by penalizing large, fuel-thirsty vehicles. But motor gasoline and road diesel represent only 20% of total energy. So downsizing motor vehicles can, at best, only panially reduce CO2 emissions from energy. The U.S. proposed a gas guzzler tax in 1978 that would have taxed cars achieving less than 12 miles per gallon at a rate of up to $2200. Highly efficient cars for 1978, 25 mpg qualifies as highly efficient, escaped the tax. Rather than imposing this tax, the U.S. relied upon the Corporate Average Fuel Efficiency Standards (CAFE) replete with tradeoffs and exemptions. The success of the program is apparent in that todays gas guzzlers compare favorably with yesterdays highly efficient cars. For Canada, a gas guzzler tax poses a direct challenge to the automobile industry. North American vehicles contribute less than 70 percent of new car sales. Imports and transplants now account for nearly half of the new car market in Canada. Most North American vehicles would incur the gas guzzler tax, while imports and some transplants would not. Thus the transportation equipment industry would be significantly shocked by a gas guzzler tax. Canadian consumers have shown tremendous ability to switch car sizes as evidenced by the Quebec experience in the past two decades. During the 1970s, over half of Quebec car were for large-size cars. After the doubling of the motor gasoline tax, to 40 percent of pump price, Quebec consumers switched almost completely to small cars. Thus a gas guzzler tax would very likely be effective in switching consumers to smaller and more efficient vehicles. The gas guzzler tax would create an artificial price differential between large and small cars. Presumably, the tax would be placed on passenger vans and recreational vehicles that are categorized as light trucks but fall w1thin the appropriate weight and efficiency dcscnpuon. The critical assumptions are the extent of the tax, and induced changes in the size, weight, technology and efficiency available for consumers. Automotive efficiency is exogenous in the DRI model. However , a gas guzzler tax with manufacturer tradeoff would encourage the production of very efficient subcompacts. A tax with no tradeoffs would encourage production of a uniform fleet of small, efficient cars. The $2200 tax on the largest cars that the U.S. considered back in 1978 would translate into a tax range of around $5000 in 1990 Canadian dollars. The moderate case uses a tax of $5000 indexed to inflation. Also, there is an annual registration fee for large cars. In the moderate case this is assumed to be $500 per year. The extreme case assumes taxes of $20,000 to purchase a large car and annual registration fees of $2,000 per year with the taxes indexed to inflation. Consumers can avoid the tax by purchas ing small cars and by retiring large cars . Consequently. the tax revenue is proportionately smaller as the tax increases. In fact, most of the tax is collected from light trucks and existing vehicles. Since ~rbon dioxide emissions are affected mostly by the switch from coal to nuclear power in electric e.eneration, even the extreme gas-guzzler tax explains o~l a small share of overall CO2 emissions reductions. Personal income under this scenario is about 1.5% lower for the 19?() to 2005 period. In the extreme gas guzzler tax scenano , about 12.4 million tonnes of carbon dioxide red_uction is attributed to reduced economic activirv. which amounts to 2.4% of total carbon dioxide emi si n and acc~unts for a little more than o ne-fifth of the reduction m carbon dioxide. Interfuel ub titution accounts for half of total carbon dioxide emi sions reduction. Unlike. the carbon tax cas es. t h ere ts · no pnce · mcennve · to switch fuels or conserve other than in the automou e sect~r. The gas guzzler tax does cau ea major hi.ft m car SLZe. Sales of large car are greatly dimin1 hed . The Transportation sector reduces CO:! emi I n b_ February 1991 33 Gas Guzz ler Tax In the moder ate case. the peak impact on the prn.e level is 0.9 percent m 1993, which then fades to 0.3 percent by 2005_ The weight of these costs in the CPI is 5.4 percent. Since m~tor vehicles represent approximately 15 percent of mvestment in _m~ch1nery and equipment , this component was also ad justed to reflect the higher cost. TABLE1 SO% of Carbon Dioxide Emissions Reduction Comes From Nuclear Power Percent) Reduced Economic ~ ConseNation & ~ Residential Commercial, ,ndustnaJ ransportatlon Electnc Utllrty OTAL Fuel Effii:::1em:;~ SiYiti:::bio ~ 8% 3% 10% 13% 26% 7% 7% 22% 0% 2% 50% 52% percentage decrease in sales is roughly 0.3 to . .... The 0.6 as large as the increase in costs; a great deal ol the adjustment is realized by increased purcha ses of smaller cars. Since Canada tends to produce larger cars, our auto industry is part1~ularly hard hit, causing relatively sizeable drops in o ur economy of up to 0.9 percent (1994). ..·.. •: only 11.2 million tonnes by 2005, har dly noticeable agamst trend growth in emissions. Consumpt ion and investment are significantl y weaker, an d our reduced competit ivenes s also lowers our exports. The domestic weakne ss leads to an even larger drop in imports (eve n after allowing for the increased need to import smaller cars), and the tra de balance shows a moderate improvement. The results of the extre me gas guzzler tax case suggest that, in the switch from coal to nuclear fuel (4950 megawatts increase in nuclea r), accounts for 50% of the total reduction in carbon dioxide . The residential, commercia l and industrial sectors contribute almost nothing to CO2 emissions reduc tions. Without a change in ene rgy prices or a major conservation initiative beyond that in the Refere nce case, there is no cause for CO2 reduct ions . Policy Assumptions The tax on gas guzzlers and higher registrat ion fees has the effect of raising purchase and ownersh ip costs, leading to the following impacts on sales: Percent Chanoe in Car Ownership Costs Car Sa!es ~ 2005 ~ am 14 25 8.3 14.0 -8.4 -2 .8 -5 .3 Moderate Extreme -15.3 Extreme Case (Percent difference from base. except as noted) Real GDP CPI Level Exchange Rate (U.S. cents) Interest Rates ( percent ) Trade Balance ($bil lion) Business Nonres. Investment Direct Revenue Impact ($b illion) Moderate Case Real GOP CPI Level Exchange Rate (U.S. cents) Interest Rates ( percent) Trade Balance ($billion) Business Nonres . Investment Direct Revenue Impact ($billion) 34 Imperial Oil ~ ZQQQ .2005 -0 .5 0.6 0.4 0.0 4.0 -3 .2 5.9 -0 .2 0.3 0.3 0.0 4.9 - 1.0 7.2 -0 .6 0.4 - 0.2 0.0 1.5 0.7 8.6 2QQQ 2005 - 1.9 1. 1 0.7 0.0 7. 1 -5.8 10.5 - 0.7 0.6 0.5 -0 .9 0.0 7.6 -2.5 12.5 0.4 -0.3 0.0 3.3 1.5 14.4 .... In the extreme case, the CPI rises by a maxim um 1.7 percent in 1993, eve ntually diminishing to 0.3 percent. This elicits an eq u ivalent rise in inter est rates during 1993. .... Real GDP growth de te rio rates by a substantial 1.3 percent in 1993, and a further 0.2 percent in 1994. The effect on GDP is consistently negative, with the consumer bearin g the largest share of the burden. .... As in the moderate case, domestic demand and Economic Impacts (Percent difference from base. except as noted) .1995 exports are weaker , but the trade balance ekes out :h;c:est _ga~ due to the drop in imports . Again. ~op m imports would have been more severe wd ere Ltnot for the switc h to non-Canadian prouced smaller ca rs. Regional and Industrial Impacts The tax on gas guzzlers d h· to a decline in car sal an igher registration fees lead es . The targetted nature of the Gas Guzz ler Tax two gas guzzler scenarios result in the thtrd and fourt h largest declines in transportatio n eq uipment outp ut of the eigh t scenanos, al tho ugh these two scenarios res ult in only moderate declines rn agg rega te o utpu t. The ext reme gas guzzler tax sce nario result s in a cumulative 2.7 percent decli n e in manufacturin g output , with nearly 60 pe rcent of that d ro p occurrin g in Ont a rio' s ma nu fact uring sector, which suff ers a to tal 2.9 per cent decline that is see n mos t significantly in both the transportatio n eq uipment a nd machinery industries. The decline in O ntari o's manufacturing output feeds th ro ugh to a cumu la tive 2.7 percent decline in employme nt (r ela tive to a 0.8 percent cumulative decline nationally). Co nsequentl y, the province experiences higher une mpl oyment rat es and lower disposable income gro wth . Th is re sult s in an average annual reduction of 7. 5 th o usand pe ople in net migration into Ontario and a cumulat ive 7.2 percent (or 70-thousand unit ) reduction in ho using starts (co mpared with a 2.7 percent reduction in total starts nationally. Given the targetted nature of this tax (that being car ownership ), all other regions are significantly less af - TABLE 2 Cumulative Declines in Industrial Output and Employment for Gas Guzzler Tax Case % Decline (90-2005) lliltkmal GNP at Factor Cost Total Goods Output Mining Output Petroleum and Coal Output• Chemicals Output Transportation Equipment Output Pulp and Paper Output Housing Starts Employment Unemployment Rate•• Real Disposable Income Albfilla 1.9 2.1 1.5 2.2 2.6 2.4 1.8 2.7 0.3 0.3 1.5 1.9 1.7 1.7 2.2 2.4 1.9 15 7 .9 0 .3 -0 .1 2.0 QntariQ 2.3 2.5 1.4 2.2 2.7 2.6 1.8 7 .2 0.4 0.1 1.7 Cumulative Declines In Industrial Output and Employment for Moderate Gas Guzzler Tax Case % Decline (90-2005) ~ GNP at Factor Cost Total Goods Output Mining Output Petroleum and Coal Output Chemicals Output Transportation Equipment Output Pulp and Paper Output Housing Starts EmplOyment UnemplOyment Rate** Real Disposable Income Annual Transportation Costs Are Increased by the Gas Guzzler Tax by Several Times the Cost of Motor Fuel (1990 dollars) Extreme Case $20 .000 per vehicle and $2.000 per year Moderate Case $5 ,000 per vehicle and $500 per year registration fee registration fee Annual Gasoline Cost ($1990) 20 ,000 kilometres at 10 litres per 100 kilometres eq uals 2000 litres Motor Gasoline Price is $0 .81 per litre 1n 2005 Total cost is $1620 per year The ten-year fuel and gas guzzler cost of purchas ing a large car would be $20 .000 for tt,e gas-guzzler tax , an addit ional $2,000 per year for 10 years for registration fees (a total of $20 .000 ), and $1620 per year for ten years for motor fuel (a total of 16,200) -all for a grand total of $56 ,200 . The gas - guzz ler tax accou nts for more than twice as much as do motor fuel costs . fected than Ontario, with aggreg a te o utput gener ally declining by less than the national average of 1.9 per cent. However, the larger and more diver sified stru cture of the Ontario economy ensures th at the imp act of this scenario on the area is less severe than the imp act of the carbon tax on the Albertan economy. Energy Results The gas guzzler tax has its principal effect on th e tra nsportation sector and manufacturing in Ont a rio . Th e gas guzzler tax effects motor gasoline d e mand , the overall economy and little else. Road diesel demand is relatively unaffected and total petroleum demand is mod es tly reduced. There is little inflation and almost no ch ange in relative prices . The major effect of the extreme gas guzzler tax is to flatten travel for the next decade. There a re ma ny more small cars but a dearth of large cars as this scen ario progresses. Large cars are subject to up to a $20,000 initial registration fee and an annual renewal fee of .Alberta QntadQ 1.2 1.3 1.0 1.5 1.6 1.2 1.3 1.5 0.2 0.2 0 .7 1.3 1.1 1.1 1.5 1.5 0.9 1.1 49 0.1 1.4 1.5 1.0 1.5 1.6 1.3 1.3 4.1 0.2 -0 .1 11 -0 .0 0.8 *Percent declines reflect relatively constant share of regional in base case . **Expressed as the average annual increase. output TABLE 3 TABLE 4 Energy Demand By Sector (Petaioules) Reference ~ Residential Commerc ial lndustnaJ Transportation Own Use Total 1408 1049 4412 2545 1109 10523 Extreme Gas GuzzlerTax Difference 1345 1024 4231 2398 1091 10089 63 25 181 147 18 434 4.4% 2.3% 41% 5.8% 16% 41% February 1991 35 Gas Guzz ler Tax CHART 1 Compact Car Sales Are Highest for Guzzler Tax 1200--,-~~~~~~~~~~~~~~~~~~~~~~~~~~~~;::-::;:::::-1 ,.-" .,, ,,,, ,. "· _,,,.,, _,.,.,, 11 ,, I *' .- _d,/ GUZ100 GUZ30 - , .,,.,,_ -: ......-::: / ' • '4' ., TX100 GST25 _,,. -·· ......./_,,- ...._, -4••··· 1975 1980 TX25 = Motor Fuel Tax Moderate TX100 = Motor Fuel Tax Extreme 1985 1995 1990 GUZ30 = Gas Guzzler Moderate GUZ100 = Gas Guzzler Extreme , - 20 10 2005 2000 C02LOW = Carbon Tax Moderate CO2 = Carbon Tax Extreme GST 10 = GST Moderate GST25 = GST Extreme constructing numerous add itional nu clea r stations is also passed through to consumers. $2,000. The lifetime (ten years) cost of owning a large car is increased by up to $40,000 in 1990 dollars . This leads to an early retirement of existing large cars. There is a small shift in interrnod al tr ansporta tion. While jet fuel and diesel fuel are relatively un affected by the gas guzzler tax, motor gasoline dema nd is decreased . Total passenger kilometr es tra ve led are reduced by about 10% from the Reference Case, wh ile motor Real electricity prices increase by about 10 percent in the extreme case as a consequence of the same economic effects as in the GST case. Demand is slightly lower because of reduced economic activity, while the cost of ···:-~-~ .... ;-:. ····:.~· :. ~ .:.:..,:,.: . CO2 ··:•:• CHART2 Intermediate Car Sales Lowest for Guzzler _---- REFER EN "':":·-:A-••~.:::.-.··~~----• ..e:' •:a,.. . . w ' """"-..... _....,..~~p~L'c ~.. I\' ,.'.....,- - \ \ ' ' 1975 1980 TX25 • Motor Fuel Tax Moderate TX100 • Motor Fuel Tax Extreme 38 Imperial Oil 1985 GUZ30 .. Gas Guzzler Moderate GUZ100 • Gas Guzzler Extreme .........._ ........ --...... -- ......... 1990 J' ' . ffi?s - GUZ30 TX100 GUZ100 1995 2000 = Carbo C02LOW .~02 = Carbon Tax\~~~erate 2005 20, 0 GST 10 = GST Moderate GST 25 = GST Extreme Gas Guzzler Tax CHART 3 Passenger Car Registrations 14CXX>-+- ----- CO2 TX100 11CXX>-+- 1975 1980 TX25 = Motor Fuel Tax Moderate TX100 = Motor Fuel Tax Extreme 1985 1990 GUZ30 = Gas Guzzler Moderate GUZ100 = Gas Guzzler Extreme 2000 1995 2005 C02LOW = Carbon Tax Moderate CO2 = Carbon Tax Extreme 2010 GST10 = GST Moderate GST25 = GST Extreme vehicle registrations are down by nearly one million vehicles . Consumer-based transportation-road and airare not significantly affected by the small change in real disposable income. 4% by 2005. Most of the demand reduction is in the industrial and transportati on sect ors. Energy Demand Results Carbon dioxide emissions are reduced by less than 10% in the extreme gas-guzzler case . Redu ctions by sector are varied; there is little impact on the residen tial, commercial and industrial sectors. The tran sportat ion sector The gas-guzzler tax and associated reduction in economic activity causes energy demand to decrease by about Carbon Dioxide Results :;::.:::::::;:::;:;:;::: ;::.;:·'.;.;::::;;:;:;:;:::;:::::::::'.;"::;:::::: .. CHART 4 Road Diesel Demand Is Lowest for Carbon Tax and Small Impact from Gas Guzzler Tax 250-~- 1975 1980 TX25 ,. Motor Fuel Tax Moderate TX 100 .. Motor Fuel Tax Extreme 1985 1990 GUZ30 = Gas Guzzler Moderate GUZ100 Gas Guzzler Extreme = 1995 2000 2005 C02LOW = Carbon Tax Modera te CO2 Carbon Tax Extreme = 2010 GST10 = GST Moderate GST25 = GST Extreme February 1991 37 Gas Guzzler Tax .. .-.;-:.., TABLE 5 Most of the decrease in carbon dioxide emissions occur s in the electric utility sector because of the switch fro m coal to nuclear fuel. Carbon Dioxide Emissions Reductions Are ~oncentrated In the Electric Utlllty Sector n t~e Extreme Gas Guzzler Tax Case (MIiiion tonnes of carbon dioxide) Economic ~ Residential Commercial Industrial 01 0.0 4.1 4.1 4.1 12.4 22% Conservation Inter Fuel And Price Substitution JQ1al 0.0 0.0 0.1 0.0 0.0 0.0 1.5 0.0 5.6 Transportation 5.7 1.4 11 .2 Electric Utility 7.5 28 .9 40.5 Total 14.7 30 .3 57.4 Share(%) 26% 100% 52% .·,:-:·.•.'., ......... ..·:·:·:·:·:::···:· .::·..:-~.:: ..,:•:•:-;,;,• ,• ·····..... ..... ·.-,• ........................... ···.····............. -..:..:..... ·./..:.: ...·.············:.,:•:.·;,,,::-, _ 38 Imperial Oil shows lower CO2 emissions approximately in line with the reductions in energy demand. Motor Fuel Tax ~tor fuel _taxes are a traditional source of funding for highway mamtenance and construction. In Europe, motor fuel taxes are also a major source of government revenues. Recently, motor fuel taxes have been considered as a means of accomplishing environmental goals such as reducing emissions of nitrous oxides. Other means of controlling smog such as catalytic converters and regulation of fuel specifications have actually been used in Canada and the U.S. But using motor fuel taxes reduce CO2 emissions is untried. Since the transportation sector accounts for a modest portion of CO2 emissions, any policy solely directed at transportation will by necessity fail to prevent growth in overall CO2 emissions. From 1990 to 2005, trend growth in CO2 emissions is larger than the total CO2 emissions from the transportation sector. At best, a motor fuel tax can make only a small contribution to CO2 emissions reductions. Motor fuel taxes are imposed on retail sales on a cents per litre basis. The federal government has increased motor fuel taxes by 1 to 2 cents per year since 1985. The Reference Case has a constant real motor fuels tax. Provinces have taxes of about 20 percent of pump prices or about 10 cents per litre. Provincial motor fuel taxes are expected to remain at current proportions of pump prices. .:-:•.·,.·. TABLE 1 45 % of Carbon Dioxide Emissions Reduction Comes from Nuclear Power, and 36 % Comes from the Transportation Sector (Percent) Reduced Economic ~ Residential. Commercial. lndustnal Transportation Electric Utility TOTAL Actb£m£ 2% 15% 7% 24% Conservation & Efficiency 2% 19% 8% 29% Fuel Sw1tch10,;i 0% 2% 45% 47% In the motor fuel tax case, the federal tax is increased by 25 cents per litre at a rate of about 5 cents per year. The real tax increase is about 10 cents per litre by 2005 or approximately double the current federal tax level. The extreme-case tax is set at 50 cents per litre real or about 90 cents per litre in current doll ars in 2005. The total revenue from motor fuel taxes increases rapidly in both the moderate and extreme cases. The tax 1s set equal for motor gasoline and diesel fuel but is not extended to other transportation fuels such as natural gas and propane. Motor fuel taxes are linked to three aspects of motor fuel demand in the Canadian Energy Model. First, taxes have an impact upon vehicle sales. The 1981 decision by Quebec to impose a 40 percent Provincial Motar Fuels Tax had an extremely negative effect on car sales. Second, the price of gasoline is combined with new car efficiency as an explanatory variable for car sales by size. The greater the tax, the more incentive to purchase small vehicles. Third. the price of gasoline affects the level of utilization. Vehicle kilometres traveled are reduced by an increase in motor fuel taxes. Carbon dioxide emissions are also affected by reduced economic activity. There are fewer homes, cars, factories, office buildings and electric power plants in the extreme motor fuels tax case. Personal income is over 3% lower in real terms by 2005 as a consequence of the tax. In the extreme scenario, reduced economic activity accounts for about 15.5 million tonnes of carbon dioxide reduction, or a 3% reduction in total carbon dioxide emissions. Reduced economic activity accounts for one quarter of total carbon dioxide reduction. Interfuel substitutionmostly in the form of nuclear power replacing coal-accounts for about half of the total CO2 reductions. Price and conser.:ati?n effects account for about one quarter of carbon dtoXIde em1Ss10nsreduction. The tran_sp~:mationsector is the second major source of CO2 em1ss1ons reductions in the motor tax case. The motor fuel tax significantly lowers vehicle sales and travel, which in tum reduces fuel use . February 1991 39 Motor Fuel Tax In the extreme case, th e CPI is boos ted by 2.1 percent by 1995. which increa ses to 3.7 perce nt at the projection horizon. Policy Assumpt ions The increase in motor gasoline truces raised the price of gasoline (which has a weight of 4.6 percent in the CPI) and led to tt:e following decline in car sales : The economy is negatively effected th ro ugho ut almost the entire period , with the lar gest ~ro p_of 1.7 perce nt occurring in 1997. The la'.ger pnce impact in the extre me scenario el :L:ts an mvestment re spon se by the tum of the Cl:ntury, which bri efly re turns the economy to base-case levels. PercentChanoelo CPI- Gaso line carSales .19.a5 ~ .19.a5 2005 Mode rate 15.9 15.9 - 4.8 -4.3 Extreme 43 .5 68.2 - 11.5 -17.6 As in the moderat e case, the consumer is hard es t hit, and exports suffer . E -gy investment is hig~- er after 2000; neverth ele ::i., :1.etr ade balance reg isters a modest improvem ent. Economic Impacts Regional and Industrial Impacts Moderate Case (Percent difference from base. except as noted) .19.a5 2QQQ 2005 Real GDP CPI Level Exchange Rate (U.S . cents) Interest Rates ( percent) Trade Balance ($b illion) Business Nonres. Investment Direct Revenue Impact ($billion) -0 .6 0.6 0.6 O. 1 1.4 -1.2 4.5 -0.2 0.4 0.5 0.0 2.3 0.5 7.2 -0 .1 0.5 0.5 0.0 2.1 1.2 9.8 .·..·:·:···· ·· .... In the moderate case the CPI is raised by a mrucimum 0.8 percent in 1994, and remains 0.5 percent higher in 2005. .... The economy drops by a mrucimum 0.6 percent in 1994, and is below base values throughout the period. As in the gas guzzler case, the consumer is particularly hard hit, business reduces its motor vehicle purchases, and exports suffer. .... Even though imports of transportation equipment fall by proportionately less than do motor vehicle purchases (to reflect the switch to more fuel efficient cars that are produced outside Canada), weaker domestic demand does lead to a small improvement in our merchandise trade balance. Extreme Case (Percent difference from base. except as noted) Real GDP CPI Level Exchange Rate(U.S. cents) Interest Rates ( percent) Trade Balance ($billion) BusinessNonres. Investment Direct RevenueImpact ($billion) 40 Imperial Oil -1.5 2.1 2.1 0.8 2.9 -2.1 12.1 0.3 1.9 1.9 0.0 4.7 -0 .6 3.6 1.6 0.0 6.2 +2.9 +2 .6 26.7 35.3 The higher price of gasoline in the se scen arios and the associated lower consumpt ion of motor fuel results in lower output of refined petroleum pr od ucts and hence lower demand for crude oil. In add ition, the higher price of gasoline lowers car sale s and redu ces the ou tp ut of transportation equipment. TABLE 2 Cumulatlve Decllnes In lndustrlal Output and Employment for Severe Motor Fuel Tax Case % Decline (90-2005) .t:l.ati.onal Alb.erla QmaciQ GNP at Factor Cost Total Goods Output Mining Output Petroleum and Coal Output* Chemicals Output Transportation Equipment Output Pulp and Paper Output Housing Starts Employment Unemployment Rate** Real Disposable Income 2.4 2.4 3.5 6.8 2.1 1.2 2.0 7.2 0.3 0.3 3.1 3.6 3.8 4.7 6.8 1.8 0.7 1.7 19.9 3.2 1.4 6.7 2.3 1.9 2. 1 6.8 2. 1 1.3 2.0 9.3 -0 .2 - 0.4 2.4 Cumulative Declines In Industrial Output and Employment for Moderate Motor Fuel Tax case % Decline (90-2005) GNP at Factor Cost Total Goods Output Mining Output Petroleum and CoaJ Output Chemicals Output Transportation Equipment Output Pulp and Paper Output Housing Starts Employment Unemployment Rate** Real Disposable Income * 1·0 1.4 1.0 0.9 1.3 · 2.3 0.9 0.5 0.7 9.7 1.0 0.4 2.1 0.7 0.8 2.3 1·~ 6·~ · 0.8 2.0 O.1 0.1 1·1 1.6 1.1 0.7 0.8 2.5 0.0 -0 .1 0.9 Percent declines reflect retativet Y constant share of reg ional output in base case **Expressed as the.average annual . increase . I I Motor Fuel Tax Nationally, aggregate output falls 2.4 percent in the extreme sec nano, with the lion ·s share of that decline occ_urring 1n Alberta, which suffers a 3.6 percent cumulative decrease. This reflects a total 4.7 percent drop in m_mmg out~ut in Alberta relative to a 3.5 percent declmc m nat1o~al ~ining output. Reflecting the relatively large negative unpact of this tax on Alberta net mig_ration mto the province declines, resulting ; a cumulative 2.1 percent decline in population there, when compared with the base case. TABLE 3 Motor Fuel Price Increases Are Dominated by Federal Taxes (Dollars per litre ,n 2005) Motor Fuel ReferenceCase Wholesale Price Federal Tax Ontario Tax Distribution Pump Price Ontario output declines relative to the base case by a cumulative _2.3 percent (approxima tely equal to the national de~lme). This is the result of only a 1.5 percent decrease m manufacturing output at the national level, with only a 1.2 percent decline in transportation equipment, althoug h 83 percent of that drop occurs in Ontario. Of all the manufacturing industries, refined petrole_umand coal products are hurt the most , suffering declines of 6.8 percent nationally , with the losses evenly distributed across all regions. TaxCase 78 78 39 1 29 .25 14 1.56 14 2.64 43 tax hike. In fact, in most years, travel per capita is declining. Both motor gasoline and road diesel pnces increase by 60 percent in real terms compared to the Reference Case. The motor fuel tax cases do not share the extensive manufacturing reduction of the gas guzzler tax. Small car sales are assisted by the motor fuel tax though not in quite the proportion as in the gas guzzler scenario. Also, the impacts are spread across all vehicle types. Energy Results The tax revenue raised is substantial, reach ing over 85 billion dollars per year (nominal) by 2010. One consequence of the tax is that vehicle regis tratio ns are lower in this case then in the gas guzzler tax case. The motor fuels tax has its principal impact on the transportation sector, including motor gasoline and road diesel consumption. In fact, the principal difference between the motor gasoline tax scenario and the gas guzzler tax is that road diesel is hit hard along with motor gasoline. Travel per capita is lower in this case than m the 1982 recession as a consequence of the gasoline Motor gasoline prices are increased by about two thirds by the extreme motor fuels tax. By 2005, the extreme tax reaches $1.29 per litre or $0.90 more than in the Reference case. Provincial taxes are increased in order to :-: CHART 1 Taxes Raise Motor Fuel Prices __... TX100 I / / _./ 1975 1990 1980 TX25 • Motor Fuel Tax Moderate TX100 ,. Motor Fuel Tax Extreme GUZ30 '"' Gas Guzzler Moderate Gas Guzzler Extreme GUZ100 = 1995 2000 2005 C02LOW = Carbon Tax Moderate CO2 Carbon Tax Extreme = 2010 GST10 = GST Moderate GST25 GST Extreme = February 1991 41 ::'"'AK-2 Gasoline Demand Is Lowest for Dlrect Taxes REFEAEN E GST10 - - ----- -- - - - - --- ..,,.,. ~~gw ,-- ....~~·-----------= ' ' ....~~ --···--------' ~.... --' -' ' ' --....__ GST25 ....ill - • • • -------- • GUZ100 CO2 -- 975 980 "'"X.25= I.Actor F el -ax \ioderate TX 00 = Motor Fuel ax Extreme 1985 1990 GUZ30 = Gas Guzzler Moderate GUZ100 = Gas Guzzler Extreme 1995 2000 2010 2005 C02LOW = Carbon Tax Moderate CO2 = Carbon Tax Extreme TX100 GST10 GST25 = GST = GST Moderate Extreme for most of the reduction in energy demand; other consuming sectors experience only only minor changes. stabilize the total motar fuel tax revenue of the provinces. Energy Demand The motar fuels tax and associated reduction in economic activny causes energy demand to decrease by about 3% by 2005. The transportation sector accounts Intermodal shifts in transportation are significant, since all types of road-fuel use decrease in the extreme motor tax scenario. Rail, air and marine transportation show minor effects from the economic effects of a motor fuels tax. :,;,:•:·/·'.•'.•:-: ;,:.:.·::: ..: .•:•:.:::.·.··=··.···..· ·.-:•. CHART 3 Transportation Demand Lowest for Dlreci Taxes 2~---,r-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ REFEREN GST10 2400....-... E ~~w GST25 GUZ100 --- -___..-_ 1700~;;;-~;;--~;---~-~~----t=--~:-1975 1980 TX25 • Motor Fuat Tax Moderate TX100 • Motor Fuat Tax Extreme 42 Imperial Oil 1985 1990 GUZ100 GUZ30 = Gas Guzzler Moderate 2 Gas Guzzler Extreme 1995 2000 2005 C02LOW = r-~ .... - .,, CO2 - Carbova, uun ,ax Moderate n Tax Extreme TX100 CO2 --t---J 2010 GSTl O = GST Moderate GST25 GST Extreme = Motor Fuel Tax ductions in CO2 emission . parallding the min1m.1l change in energy demand. TABLE 3 Energy Demand By Sector (Petojoule s) Res1denbal Commerc1aJ lndustnaJ Transportation Own Use TotaJ Reference Extreme Motor ~ ~ 1408 1049 4412 2545 1109 10523 1352 1029 4381 2304 1100 10166 Difference ~ 56 3.9% 1.9% 0.7% 9.5% 0.1% 3.4% 20 31 241 9 357 The electric utility sector expencnces alm1 st nl) rcduc tion in fuel use, yet shows a maior decrea c in art'>1)n dioxide emissions. The switch from coal to nuclear fuel accounts for three quarters of the decrease in cnrlxin dioxide in the utility sector. TABLE 4 Carbon Dioxide Emissions Reductions Are Concentrated In the Transportation and Electric Utility Sector In the Extreme Motor Fuels Tax Case Motor vehicl~ regi tr ation are abo ut 700 thousand less by 2005 than i.n the Reference case. Total vehicle kilometres trav~led i reduced by nearly 20% to 261 billion, compared with nearly 320 billion in the Reference case. Carbon Dioxide Results Carbon dioxide emissions are reduced by about 10% in the extre~e motor-fuels tax case. Reductions are concentrated i.n the transportation and electric utility sectors. The other consuming sectors show very minor re- (Million tonnes of carbon dioxide) ~ Residential Commercial Industrial Transportation Electric Utility TotaJ Share(%) Economic ~ Conservation 02 0.2 1.2 9.3 4.6 15.5 24% 0.0 0 .0 15 11.9 4.9 18.3 29% :::.::..·.::::-.:;:.: Inter Fuel ~mi erice SubslilUIIQO 0 .0 0 .0 0.0 1.4 28 .9 30 .3 47% .Tola! 02 02 27 22 .6 38.4 64 .1 100% .-::::;·::·. February 1991 43 Conclusions When carb n dioxide emi ions were rcducctl in the past-specifically, 19 to 19 3-the experience of the pnce hock and recession was one f pain for energy consumers and energy producers. Economic hock was accompanied by government intervention in market decisions. Such event ultimately disrupt normal economic. commercial and political decision-making. In particular, political decisions carry an inherent responsibility to all parts of ociety such that a single-minded goal is usually unworkable. Tradeoffs must be made between CO2 reduction, economic growth and other environmental issues . Taxes hefty enough to reduce CO2 emissions have significant macroeconomic effects. Taxes on energy raise prices to consumers, ultimately causing inflation. Producers do not share in the price increases, altering the allocatio n of resources within the economy. And higher energy prices mean a loss of industrial competitiveness and a consequent deterioration of the trade accounts. Narrowly based policies have more severe consequences for foreign trade than do broad-based policies. The taxes also differentiate by region, with energy-producing provinces such as Alberta facing the most severe adjustment costs for such levies as the carbon tax. Ontario has the most extensive impact from the gas guzzler tax. Quebec fares relatively better than other regions across all tax cases. Much of Quebec's energy comes from hydro power, which is relatively unaffected by the four tax scenarios considered in this study. What all the scenarios show is that direct taxes are a poor way of reducing CO2 emissions. The major impact on CO 2 comes from new nuclear plants replacing coalfired generation. Secondary improv~n:ients in .CO2 emissions occur from automotive efficiency gams, conservation, and increased use of natural gas. Taxes on CO 2 are taxes on energy consumption. Coal emits the greatest amount of CO2 per unit of energy, while natural gas emits half that of coal, and nuclear and hydro power emit no CO2. The simplest way to Carbon Taxes Lower Economy More In both the moderate and extreme cases, the largest drop in real economic act1V1tyresults from the imposition of carbon taxes. In t~e moderate case, cumulative real GDP declines by $40 billion, or about 0.4 percent, over the period 1990-2005. Cumulative real GDP ~eclines by over $100 billion, or 1.1 percent, m the extreme case. In terms of the inflation cost, the carbon tax scenarios represent some of the most severe impacts. In the moderate case, the CPI level is increased by a cumulative 1.9 percent (the largest increase ), while in the extreme case, the CPI level is increased by over 10 percent, cumulatively (the second largest increase after the goods and services tax. or GST). reduce CO 2 emissions from energy is to substitute natural gas, nuclear and hdyropower for coal. The carbon tax is set in proportion to carbon content. Thus the carbon tax causes a high propensity to switch fuels. Generally , the taxes are very effective in reducing consumption of those items taxed, be they large cars, motor fuels, carbon content or eco nomic activity. The carbon tax causes the largest decrease in GDP and has the most severe effects on the Alberta mining industry. The gas guzzler tax is a particularly inefficient way of reducing CO2 emissions since its primary effect is to reduce manufacturing activity and imbalance existing international trade patterns. Also, narrowly based policies such as the gas guzzler tax exact the largest costs in terms of foreign economic activity. The gas guzzler tax also has very pronounced effects on the Ontario economy. The GST is a broad-based tax that does not differentiate by carbon content. The effect on electricity is enormous. Lower economic activity and higher inflation add to electricity price increases such that electricity demand February 1991 45 Conclusions TABLE 1 · The Gas Guzzler Tax Has by Far the Worst Economic to CO2 Reduction Tra Ratio ~ (SLioccel GllLlQil lcflatioc deoff of All the scenarios . M.i..ni,ag M,J.auta,tuciag Rankingfrom Best to Worse ModerateCases 1 2 3 4 GUZZLER GST CO2 COz MOGASTAX MOGASTAX MOGASTAX GST CO2 GUZZLER GUZZLER GST GUZZLER GST MOGASTAX CO2 MOGASTAX GUZZLER MOGASTAX GUZZLER CO2 GST GST cei GUZZLER GST GST COz MOGASTAX MOGASTAX MOGASTAX GST GST GUZZLER GUZZLER COz GUZZLER COz MOGASTAX COz .::=· :.·-::'/· :.::.:f::·:.:.: ..·,: MOGAS TAX GUZZLER MOGASTAX GUZZLER GST cei cei GST .• ..•: :-... ExtremeCases 1 2 3 4 .....;:=:=::::··: is nearly flat in this case, compared with moderate growth in all other scenarios. are achieved with a lesser impact on economic activity than in the gas guzzler scenarios. The motor fuels tax is borne by consumers and results in a significant increase in inflation. Since both gasoline and diesel consumption is targeted by this tax, and since the tax does not differentiate by class or type of vehicle, the effects on energy consumption and CO2 emissions Similarly, all of the cases can be compared in terms of their economic efficiency in reducing CO2 in dollars per tonne. The cumulative loss in real GDP between 1990 and 2005 is a measure of the social investment made in :·=··.. ':::-;: - ·:-:-.::..<·.. CHART 1 CHART 2 Cumulative Loss in Real GDP (1990-2005) Moderate Case Cumulative Loss in Real GDP (1990-2005)Extreme Case (Millions of 1981$) 1 500(),Tll •rr,--r --;r (Millions of 1981$) -1 5000 -5000 -20000 -6C()() -25000 -7()()() . :::, -30000 -35000 -100 500o-t-~~~~~~~~~---------1--45000 VVV\.,_ _____ 2005 • Goods & ServicesTax GasGuzzler D 0 CarbonTax • MotorGasolineTax 46 Imperial Oil :-:--_____ j_ _,,Q 2005 • GOOds& Services Tax D Carbonrax 0 B Gas Guzzler Motor GasolineTax CHART 3 CHART 4 Cumulatlve Increase In the CPI - Extreme Case Cumulatlve Increase In the CPI - Moderate Case (Percent difference from Base in 2005) (Percent difference from base 1n 2005 ) 2.o-r--------------- 2.0 1. 1ii...-~~~~~~~~~~~~~~~~~~-r- 1 4 1.8 12 1.6 10 1.4 8 1. 1.2 1. 1.0 6 8 4 .6 2 .4 0 .2 2005 2005 • Goods & Services Tax D Gas Guzzler • Goods & Services Tax D Gas Guzzler D Carbon Tax II Motor Gasoline Tax D Carbon Tax B Motor Gasoline Tax ••:=-:: ·...·.· ...::,;·:·;.;.:;:;·-:·.· CO2 reduction . The cumulative reduction in CO2 emissions is the result. Carbon dioxide has a high cost per person. In 1990, CO2 emissions averaged 20 tonnes per person. A typical car emits 5 tonnes of CO2 per year , and a typical home emits 9 tonnes of CO2 yearly. To reduce CO2 emissions by 20 percent, each person would have to decrease emissions from a car and/or home by 4 tonnes. At a cost ······.···:::}:.·.. :•.•,•,•; ,.·;. ·.·.·.··/ CHARTS CHART 5 Cumulatlve Percentage Loss In Mining Output In Alberta for Extreme Scenarios ::; .: . . Cumulative Percentage Loss In Manufacturing Output In Ontario for Extreme Scenarios \·:• -1 -1 GST CarbOn Tax Guzzler Motor Fuels Tax GST Carbon Tax Guzzler Motor Fuels Tax February 1991 47 Conclusions Comparison of Regional and Industrial Impacts Across Scenarios her cost of ga line and subseq uent .r · tax scenano. the hig lower demand for automobiles re u lt IIl a more ignut · . im · pact o n the output of transport atio cant negauve . n equipment. despite the relative ly smaller decline in Indeed in the mo t extreme carmanu factunn g Output . · bon-tax case. transportation equipment output de clines a cumulative 6.3 percent relative tO the base ca e. compared with a relative decline of on.ly 3:2 percent for transportation equipment producuon in th·e · extren:ie GST case. Not surpnsingly. the most significant d iffe rence between the carbon tax and GST scenanos is the impact upon mining output. which is down much more dramatically in the carbon tax case. At a national level, for both the moderate and extreme scenarios over the 16-year simulation period (1990 to 2005), the carbon tax scenarios have the largest negative cumulative impact upon gross output, while the GST scenarios have the second largest impact. To be sure, manufacturing output falls more severely in the GST scenario than in the carbon tax scenario, reflecting the more targetted impact of the latter. But in the carbon As expected, Alberta is the province most severely af. fected by the carbon taxes. In the extreme carbon tax case, Alberta loses 8 percent of cumulative real output over the 1990 to 2005 period-the largest negative impact for any region in any of the scenarios. Similarly, Ontario is the province most severely affected by the gas guzzler scenario, which negatively impacts manufactur ing. of Sl per t0nne (based on the GDP loss to CO2 ratio m thlS study) the per captta cost is about $4000. In pnnc1pal. the best policy to reduce CO2 would be the one most cost effective. Cost effectiveness 1s shown by companng cumulative CO, emissions with cumulative GDP reductions m Chart i (see ''Executive Summary''). ~lost of the scenarios have a cost of less than $1000 per tonne. 48 Im erial Oil Appendix Appendix cies Ranked by Relat 1ve TABLE 1 se v erity of National Impact Regiona l Impacts of Alte rnative Government Poll Canada Al ternat i ve Poli cies . b Saskatc hewan Mani t o a Bri t ish Columbia ~ - Onta ri o Quebec Atl antic --- For 1990 t o 2005 Cumulat ive Difference fr om Base Case Aggregate Output {$81 Milli on) 1) Carbon Tax - Extreme Case . .. . .. -566, 314 --6.6 % Oi ff ... . ... . .. .... . . .... ... . --65, 617 --6.7 -94,663 -8.1 - 19,347 --6.3 - 22,233 -227, 931 -9 7,462 -5.2 -6.8 - 7 .1 -39, 062 - 7.4 - 380,495 2) GST - Extreme Case . . .. . . ....... -4 .5 % Olf f. .. . ...... . ....... . . . .. , -45, 158 -4.6 -55,618 -4.8 - 12,799 -4.2 -13 , 982 -155, 915 -66, 526 -4.7 - 3 .5 -4.4 -30,497 - 5.7 3) Motor Fuel Tax - Extreme Case. . -208, 383 -2.4 % Di ff .. . . . .... . . . ... . ....... . -25, 473 -2.6 -42,390 -3.6 - 7,991 - 2.6 -8 ,822 -2.8 -76,381 -2.3 -3 3, 013 - 1. 7 - 14,312 - 2.7 4) Gas Guzzl er Tax - Extreme Case. -163,393 - 1.9 % Di ff . . . . .. . .... . . .. ..... .. . . - 17, 920 -1.8 -21 ,648 - 1.9 -4 , 594 - 1.5 -5, 776 -1.8 - 75, 727 -30, 189 - 1.6 -2.3 - 7,540 - 1.4 -153,899 - 1.8 - 19, 127 - 1.9 - 33, 142 -2.8 -4 ,809 -1.6 -5 ,065 - 1. 6 -64,683 -21, 065 - 1.1 - 1.9 -,5,008 - 1.1 - 144,788 6) GST - Modera t e Case .... . ....... -1. 7 % Diff .... . • . .. . • . •.... .. .. , . . -15,049 -1.5 -18,405 - 1.6 -4 , 505 - 1.5 - 5,673 - 1.8 -61 , 222 - 28, 825 - 1. 5 - 1.8 - 11, l 10 - 2.1 derate Case -105,419 7) Gas Guzzler Tax - Mo % Diff . .. . . ........ . . . ........ - 1.2 -12,066 - 1.2 -14,583 - 1.3 - 3, 118 -1.0 - 3,860 -1.2 -47, 712 -19, 663 - 1. 4 - 1.D -4 ,419 -0 .8 -85 , 557 - 1.0 -10,252 - 1.0 -1 5,8 18 - 1.4 - 3, 186 - 1.0 -3,405 -1.1 -32,428 -1.0 -5, 334 - 1.0 5) Carbon Tax - Moderate Case. .. .. % Diff. .. . . . . ..... . . . .. ....... erat e Case. 8) Motor Fuel Tax - Mod % Di ff .. ..... ... . ... . ........ . ::.: :·. -15, 133 -0 .8 ;·;::. TABLE 2 Regional Impacts of Alternative Government Policies Ranked by Relative Severity of National Impa ct Alternative Polici es Canada British Columbia Alber t a Saskatchewan Mani toba Ontar i o Quebec Atlant ic Cumulat ive Diff erence from Base Case For 1990 to 2005 Manufacturi ng Output {$81 Mi11ion) . ... . -121, 142 1) GST- Extreme Case........ % Diff . ..... . ...... . . . . . ...... - 7.2 -1 1, 505 -,5.8 -5 , 380 -5.7 -1 , 154 - 7.6 -3,020 -7.2 - 3,384 - 7.D 2) Carbon Tax - Extreme Case ...... % Diff . •. • .•.. • ........ , ..•... -66 , 492 -30,2 07 -7.3 - 7. 5 -114,540 -,5.8 -10,761 --6. 4 -5,5 15 -5 .8 - 1,051 -,5. 9 - 2,894 -,5. 9 3) Gas Guzzler Tax - Extreme Case. % Di ff .......•...•.. • . •• ...... -44,616 -2.7 -63,453 -7.0 -27,5 24 -6.8 - 3,342 -6.9 -3,4 02 - 2.0 - 1,948 - 2.1 - 380 - 2.5 4) GST- Moderate Case••.•..•.•. -42, 327 -2.5 -l , 142 -2.7 -3,4 70 -2.1 -26,316 -2.9 -10 , 348 - 2. 6 - 1,081 - 2.2 - 1,527 -1.6 -382 -2 .5 5) Carbon Tax - Moderate Case. .... % Diff ........ . . . .. . ........ .. -30,829 -1.8 - l, 138 -2.7 -2,694 - 1.6 -24, 125 -10,561 - 2.6 - 2.6 - 1, 124 -2.3 - 1,269 -1.3 6) Gas Guzzler Tax - Moderate Case % Diff. ......... . ......... .. .. - 303 - 2.0 -26,434 - 1.6 -2, 165 -1.3 -791 -1.9 -17,488 -1.9 -948 -2.0 -1,220 - 1.3 - 7, 337 - 1.8 7) Motor Fuel Tax - Extreme Case.. -24, 758 -1.5 - 233 -1.5 -2,6 17 -1.5 -,555 -1.6 - 1,466 -1. 6 -15 , 268 - 1. 7 -6, 199 - 1.5 -684 -!. 4 -9,886 -0.6 -259 - 1.7 -1, 058 -0.6 -5 41 -1.3 -,, 10 -0. 6 -12,857 -1.4 -,5, 093 -1.5 -925 - 1.9 -99 -0 . 7 -212 --0.s - 2, 449 --0. 6 -382 --0.8 % Diff .....•.••...... % Diff ............. •. . ....••.• . .......... 8) Motor Fuel Tax - Moderate Case. % Diff •.••• • •. . ....••.... • . •.• ..•..: ~ 50 Imperial Oil -5, 076 --0.6 Appendix TABLE 3 Regional Impacts of Alternative Government Policies Ranked by Relative Severity of Natlonal Impact Alternative Policies Canada British Columbia Alberta Saskatchewan Manitoba Ontario Quebec Atlantic Cumulative Difference from Base Case For 1990 to 2005 Mining Output ($81 Million) 1) Carbon Tax - Extreme Case... .. . -52,570 %D1ff. .. . .................... -10.6 -3,646 -7.3 -37,018 -13 .9 -3, 169 -8 .6 - 1, 348 -7.2 -4,549 -6.5 - 1,387 -5 .3 - 1,454 - 5.1 -27,790 2) GST- Extreme Case . . ........... % Diff.............. .. ... . . .. . -5.6 -2,591 -5.2 -15,427 -5.8 -2,068 -5.6 -1,026 -5.5 -3,835 -5.5 -1,471 -5.6 - 1, 373 -4.8 3) Motor Fuel Tax - Extreme Case.. % Di ff........... . . . .......... -17,400 -3.5 -l, 120 -2.2 -12,494 -4 .7 -1,173 -3 .2 -420 -2 . 2 -1,451 -2.1 -405 - 1.5 -337 -1.2 4) Carbon Tax - Moderate Case... .. % Di ff... ... ...... . ... ........ -17,343 -3.5 -963 - 1.9 -13,339 -5.0 -1,068 -2.9 -356 -1.9 -1,124 -1.6 -253 -1.0 -240 --0.8 5) GST - Moderate Case............ % Di ff.. . ... .. ... ............. -7,992 -1.6 -681 - 1.4 -4,621 -1.7 -619 - 1.7 -281 -1.5 -1,063 -1.5 -392 -1.5 -3 37 -1. 2 6) Gas Guzzler Tax - Extreme Case. % Di ff........................ -7,567 -1.5 -627 -1.3 -4, 456 -1. 7 -580 -1.6 -261 -1.4 -985 -1.4 -362 - 1.4 -1.0 7) Motor Fuel Tax - Moderate Case. % Di ff....................... . -6,093 -1.2 -415 --0.8 -4, 178 -1.6 -430 -1.2 -162 --0.9 -578 --0.8 -176 --0. 7 - 154 --0. 5 8) Gas Guzzler Tax - Moderate Case % Diff........................ -5,131 -1.0 -436 --0.9 -2,994 -1.1 -390 -179 -673 -249 -1.1 -1.0 -1.0 -1.0 -209 --0. 7 :•. ..:= .; ·.. -::-:-·· ·. ·,•:• ·:;::·. ···.·.·· ·.·'.· -296 ···::::::. ABLE 4 Regional Impacts of Alternative Government Policies Ranked by Relative Severity of National Impact Altern ative Policies Canada British Columbia A1berta Saskatchewan Manitoba Ontario Quebec Atla nt ic Cumulative Difference from Base Case For 1990 to 2005 Population (000 IS) 1) GST- Moderate Case ...•• •.•. .•. % Diff ................ . ....... 0 0.0 -65 --0.1 -147 --0.3 128 0.8 - 326 -1.8 -405 --0.2 796 0.7 18 0.0 a Diff . .. .... , ... ············· 0.0 -527 --0.9 -562 -1.3 316 1.9 -853 -4.6 -1,276 -0.8 2,937 2.6 -35 --0.1 3) Gas Guzzler Tax - Moderate Case % Diff ......... · . . ··· ··· · ····· 0 0.0 -3 4 --0.1 -156 -0.4 120 0.7 -168 -0.9 -441 -0.3 851 0.8 -172 -0.4 4) Gas Guzzler Tax - Extreme Case. % Di ff ........ ·,·············· 0.0 a -35 -0 .1 -235 -0.5 186 1.1 -257 -1. 4 -737 -0.4 1,303 1.2 -225 -0.6 5) Motor Fuel Tax - Moderate Case. % Diff ......... ·,·········· ··· a.a 0 -31 -0.1 -308 --0.7 85 0.5 -166 -0.9 -210 -0 .1 762 0.7 -131 -0.3 6) Motor Fuel Tax~ Extreme Case .. % Diff ................ ······ ·· 0 0.0 -193 --0. 3 -9 03 -2.1 176 1.0 -428 -2.3 -534 -0.3 2,278 2.0 -396 -1.0 7) Carbon Tax - Moderate Case ..... % Diff ............... ·,···•··• o.o 0 -151 -0.3 -1,331 -3.0 110 0.6 -105 -0 .6 -354 --0.2 2,314 -483 2.0 -1.3 0 0.0 -218 -0.4 -2 ,952 -6.7 475 2. 8 -857 -4.6 -934 -0.6 5,139 4.5 -652 -1.7 2) GST- Extreme Case .•...•••.•••. % 8) Carbon Tax - Extreme Case .•..•. % Diff ............... ·· · ······ ... .. ,· Appendix ·: < .. ·. . ~ .. · · ·ty 1 National Impact ked by Relative Severi 0 Regional Impacts of Alternative Government Policies Ran TABLE s Canada Alternative Policies British Columbia Alberta · t oba Ontario h an Mani Saskatc ew _ Quebec Atl ant ic ~ se Case For 1990 to 2005 Cumulative Difference from Ba Real Personal Disposable Income ($81 Mi11i on) 1) Carbon Tax - Extreme Case. .. ... -189, 178 -3.3 Qiff .......... ...... .. ..... . -34,419 -4.8 -25,157 -4.5 -9,225 -5. 0 -15, 743 -57,594 -2 .6 -7.4 -23 ,889 -1. 7 -28,528 -7. 1 2) Motor Fuel Tax - Extreme Case. . -177, 305 l, Qiff ........ -3.1 .. ... . .......... -30,974 -4.4 -38,537 --0.7 -7 ,790 -4.2 -10, 005 -54,557 -2.4 -4.7 -27 ,758 -2.0 -15,562 -3.9 3) GST- Extreme Case............. . •. ..•.. . ..... % Qiff ...•...... -150,104 -2.5 -28,932 -4.1 -40, 197 -7 .0 -10,143 -5.4 -13, 075 -32,352 -1.4 -6.2 -6,255 --0. 5 -30,594 -7.5 4) Carbon Tax - Moderate Case. .••. . ..... . -99,278 -1.8 -18,983 -2 .7 -17,934 -3.1 -4,070 -2.2 -5,290 -2.5 -39,076 -13,243 -1.0 -1. 7 -2,305 --0. 6 5) Gas Guzzler Tax - Extreme Case. % Qiff. ....................... -86,444 -1.5 -12,499 -1.8 -11,348 -2.0 -3,145 -1. 7 -4,547 -2.2 -38,870 -13,840 -1.0 -1. 7 -3,405 --0.9 6) GST- Moderate Case., . . , .. , ... . % Diff .. ...................... --04,690 -1.1 -7,582 -1.1 -9,795 -1. 7 -2,935 -1.6 -4, 332 -20, 924 -10,073 --0. 7 --0.9 -2.0 -11,050 -2.8 7) Motor Fuel Tax - Moderate Case. -fJ0,025 -1.1 -9,970 -1.4 -12,070 -2 .1 -2,494 -1.3 -3,279 -19,929 -10,287 --0.8 --0. 9 - 1. 5 -4,247 -1.1 -41, 756 --0. 7 -6, 797 -1.0 -6,094 -1.1 -1, 665 --0. 9 -2,587 -1.2 -6,450 --0.5 -347 --0.1 Ji Oiff ..•.. ... ......... % Qiff. ... . .......... . ........ 8) Gas Guzzler Tax - Moderate Case .... , .... ... , , % Diff .......... .;:::- :··:,: .;::;:::::::::::.;: ;:;:;::::..::::. ::::: :: ·=:: .,,,:::,•,::: :,•,:•..•::,:,: ••..• '':;.:.... :.....: ..: -18,557 --0.8 . .·. '•'···=··· :·:::::::::::>:;:-·: .._:,.••. -:-:-::;.;.:::·:-:· ·· .•.;.•,'.,:-::; ::;.;·:·::;:;.•-,--·,: ·-·:·-·.·· ;,:- •: .; TABLE 6 Regional Impacts of Alternative Government Policies Ranked by Relative Severity of National Impact Alternative Policies Canada British Columbia Alberta Saskatchewan Manitoba Ontario Quebec Atlantic Cumulative Difference from Base Case For 1990 to 2005 Housing Starts 1) GST- Extreme Case•............ % Diff. ....................... -425,521 -16.1 -115,343 -23.2 -73,790 -25.8 -1,219 -2 .2 -22,663 -33.5 -224,958 -23.0 2) Carbon Tax - Extreme Case.•.... % Diff. ....................... -260,318 -9.8 41,399 7.4 -82,406 -15.6 -28,949 -13 .4 -64,885 -23.5 14,898 25.3 -17,385 -25.7 3) Motor Fuel Tax - Extreme Case.. "Qi ff ........................ -191,935 -7 .2 -180,753 -18.4 -54,885 -11.1 121,319 21.8 -51, 104 -23.6 -54,819 -19 .9 1,352 2.4 -14,813 -21.9 -115,817 . -4.4 -21,718 -4.4 -91,006 -9.3 75,796 13.6 -18, 174 -6.6 -53,568 -24.7 2,519 4.5 -14,007 - 20.7 -60,264 -6.2 -7,528 -1.4 3,255 1.5 4) GST- Moderate Case•••.•••••... % Diff, ...... ,, ...... ,, ...... 5) Carbon Tax - Moderate Case••... % Diff .. , ..•.• . •. ,,., ....... ,. ~0,435 -3.0 -31,860 -6.4 -46,249 -16 .8 9,850 17.4 6) Gls Guzzler Tax - Extreme Case. " Qiff ••.•••.••••••••.•.•..... -71,022 -2.7 -8,517 -784 -1.2 -56,277 -5.7 -21, 775 -7.9 98,105 17.5 -53,219 -24.5 7) Motor Fuel Tax - Moderate Case. % Oiff .................. . ..... 7,943 14.D -53,805 -2.0 -10,826 -2.2 -11,574 -17 .1 -25,731 -9.7 -70,305 -7.2 58,544 12.3 ~.522 -24,006 8) Gas Guzzler Tax - Moderate Case -40,799 % Oiff -1.5 ./:;·_.::;:·:.·'.·:;:·· ..· ..; ..; ::·:.:::-::.:: ·:;;:;·;.• ..::::.:.:.· 1,837 3.2 -35,339 -15.3 -6,058 -1.2 -2.5 33,340 6.0 -18,897 ~.7 5,224 9.2 ~.609 -12.7 -39,791 -4.1 47,586 8.5 -25,545 -11.8 ························ -1.7 -13,604 -4.9 -12.5 ;.;,;::::::: 52 Imperial Oil Appendix TABLE 7 Energy Summary for GST Moderate Case (Differences from Reference Case) %CH YEAR S 192S ZOOO zoos zoos 0 2,546 4,009 5,954 Heavy Fuel Oil Price ($1990, BBL) Difference 20 26 33 41 o 5.0 38.0 Motor Gdsoline Price(l990 Cents/Litre) Difference 55 59 0 67 81 2.6 25.5 5 7 0 5.9 NM 199Q NewEnergy Tdxes(S Mill i ons) Naturdl Gas Price ($1990/GJ) Difference Codl Price ($1990/GJ) Difference Electricity Price ($1990/GJ) Difference Motor Vehicle Sales (Thousdnds) Difference Compdct Car Sales (Thousands) Difference Total Kilometres Trdve1ed (Mi11ions) Difference ,. o 3 o 2 o o o 4 o o 2 2 o NC o o o o 2 1.3 NM 10 12 1 13 1 13 1 1.6 NM 1,439 1,693 -31 1,790 -10 1,906 -7 1.9 NM 755 -24 801 -9 924 -5 2.4 NM o l 650 o 245,609 276,283 303,913 324,894 -5 -3, 771 -5,353 -6,338 Nuclear Cdpacity (Megdwatts) Difference 12,369 Natural Gas Demand(Petajoules) Oifference 2,948 -3 Electricity Demand(Petajoul es) Difference 1,742 15,969 1.9 -60.7 15,947 o 17,747 900 3,419 -16 3,602 -22 3,718 -39 1,967 -51 2,170 7 ~ 2,318 -156 Petroleum Demand(Petajoules) Difference 3,608 -3 3,745 -40 3,890 -38 3,844 -75 0.4 -25.0 Motor Gasoline Demand(Petajoules) Difference 1,195 1,222 -12 1,252 -17 1,247 -20 0.3 -50.3 335 417 -4 469 -4 494 -6 2.6 -22.9 Road Diesel Demand(Petajoules) Difference .::·:·-· o 1990 TO ..-.;:. ·.;•:•.• :-.· ........ ........ o o o o .·.-:: .·. .-:.- 2.4 NC 1.6 -19.6 1.9 NM ·::... August 1990 53