Carbon pricing and economic populism: the case of Ontario

Abstract

ABSTRACT Carbon pricing policies face growing threats from populist attacks citing increased costs for consumers. This paper explores the potential for different strategies to protect carbon pricing policies from these attacks through an in-depth analysis of the enactment and subsequent reversal of an economy-wide cap-and-trade programme in Ontario, Canada, from 2015 to 2018. The paper uses process tracing of key government documents, media coverage, and interviews with those involved in the enactment and promotion of the policy, to answer two questions: (1) why did Ontario choose a carbon revenue approach focused on economic development and climate mitigation? and (2) how did that approach make the policy more vulnerable to a populist attack based on higher consumer prices? The analysis tests a central hypothesis grounded in previous research: A failure to focus more on consumer costs in designing and promoting the cap-and-trade progamme is a primary reason for the Ontario policy’s startling political failure. In this respect, the paper concludes, Ontario’s experience constitutes a warning about the importance of designing and framing carbon pricing policies to defuse the potential power of populist attacks focusing on energy prices for ‘working families’. Key policy insights Carbon pricing policies remain vulnerable to populist attacks based on opposition to higher consumer prices. Dedicating carbon revenue to interest groups may undermine the ability to defend the policy against consumer pricing attacks. Carefully explaining a cap-and-trade policy mechanism can be important to building public support for the policy. Neither its complexity nor its integration with international carbon markets protected Ontario’s cap-and-trade programme from repeal. Ontario’s cap-and-trade policy’s repeal can be substantially attributed to the government’s approach to allocating carbon revenue.