Tax Expenditures to Limit the Growth of Carbon Emissions in Canada: Identification and Evaluation

Abstract

Unlike the U.S., which relies heavily on tax expenditures as instruments of energy and climate change policy, Canada has introduced very few such tax expenditures, relying instead on voluntary initiatives, direct subsidies, and limited regulatory measures to limit carbon emissions. This paper identifies and evaluates the most prominent tax expenditures in Canada to limit the growth of carbon emissions. As background to this inquiry, Part II reviews Canadian experience with carbon emissions over the last two decades and the limited government response to this growing problem. Part III identifies the most prominent tax expenditures that Canadian governments have introduced in order limit the growth of carbon emissions. Part IV evaluates these tax expenditures as spending programs and tax measures, concluding that they are vulnerable to many of the traditional criticisms levied against tax expenditures. As a result, the paper concludes, if Canadian governments are to continue to utilize tax expenditures to help fight climate change, they should pay closer attention to the insights of tax expenditure analysis and design these policy instruments accordingly.