Conventional wisdom would suggest that Alberta’s oil and gas industry will suffer the most when federal carbon taxes hit $170 after 2030..But a new study by the Canadian Energy Centre suggests it will actually be Ontario’s manufacturing heavy economy that will take the biggest hit, with ripple effects for the rest of Canada..Ontario is by far the largest contributor to GDP of Canada at about 38% — double Alberta’s 17% — making it a bellwether for the entire country.. Canadian GDPShare of GDP by region. .That’s because a province like Alberta relies almost exclusively on steel products manufactured in Ontario for its oil and gas industry..Likewise, Saskatchewan and Manitoba, which contribute just 7% between them, rely on fertilizers and pesticides made in Ontario for their pervasive agricultural sectors, and transportation networks to move those products to British Columbia ports, for example..And so on, and so on….In essence Ontario is the canary in the coal mine, CEC suggests, especially its steel and mining sectors where fossil fuels like natural gas and coking coal are primary inputs..In fact, steel making costs are poised to jump more than 62% by the end of the decade, which will have trickle down impacts through all indirect sectors of the economy that use it..“The carbon tax will give rise to both direct and indirect business costs. Energy-intensive industries will incur more of the former and other industries more of the latter,” it said..Ultimately, it will have a hard time passing those costs down to “secondary” users especially when those products are exported and in turn transported.. Carbon tax hit to OntarioSteel bears an outsized brunt of the carbon tax impact in Ontario. .The automotive sector is a prime example. .While the auto industry has a relatively low energy intensity in terms of manufacturing plants, the products it relies on — steel rubber, plastics, and now critical minerals for EVs — will have a compounded impact throughout the entire supply chain. .The auto industry is also tightly integrated with the US which raises a whole other set of unintended consequences..Because the two countries aren’t aligned in terms of carbon policies, the imbalance could see companies and entire industries shift “to lower-cost regions” — the US — leading to what the CEC calls “carbon leakage.”.“Companies in fabricated metal and plastic and in rubber products will face a significant impact from the carbon tax due to their high exposure to trade competition from similar industries in other jurisdictions that have less stringent rules,” it said..The automotive sector is also becoming increasingly reliant on the mining of critical minerals, where energy is also a primary input into pulling them out of the ground and then processing and refining them..But its not just automobiles..Basic chemicals such as pesticides and fertilizers will take a 30% hit. Many of those products are also exported. More harmful is the trickle down effect on the agricultural sector, both in Ontario and across the country. .Which means many industries that aren’t directly impacted by the tax — restaurants — will nonetheless bear an outsized burden..“Industries such as food services and restaurants, financial services, or retail stores that are not subject to the tax directly may still experience significant cost increases if the sector relies on inputs that use energy-intensive production processes..“As this Research Brief has shown, there is no doubt that industries in Ontario will face additional costs associated with the $170 per tonne carbon tax, which will affect industry cost competitiveness,” CEC said.
Conventional wisdom would suggest that Alberta’s oil and gas industry will suffer the most when federal carbon taxes hit $170 after 2030..But a new study by the Canadian Energy Centre suggests it will actually be Ontario’s manufacturing heavy economy that will take the biggest hit, with ripple effects for the rest of Canada..Ontario is by far the largest contributor to GDP of Canada at about 38% — double Alberta’s 17% — making it a bellwether for the entire country.. Canadian GDPShare of GDP by region. .That’s because a province like Alberta relies almost exclusively on steel products manufactured in Ontario for its oil and gas industry..Likewise, Saskatchewan and Manitoba, which contribute just 7% between them, rely on fertilizers and pesticides made in Ontario for their pervasive agricultural sectors, and transportation networks to move those products to British Columbia ports, for example..And so on, and so on….In essence Ontario is the canary in the coal mine, CEC suggests, especially its steel and mining sectors where fossil fuels like natural gas and coking coal are primary inputs..In fact, steel making costs are poised to jump more than 62% by the end of the decade, which will have trickle down impacts through all indirect sectors of the economy that use it..“The carbon tax will give rise to both direct and indirect business costs. Energy-intensive industries will incur more of the former and other industries more of the latter,” it said..Ultimately, it will have a hard time passing those costs down to “secondary” users especially when those products are exported and in turn transported.. Carbon tax hit to OntarioSteel bears an outsized brunt of the carbon tax impact in Ontario. .The automotive sector is a prime example. .While the auto industry has a relatively low energy intensity in terms of manufacturing plants, the products it relies on — steel rubber, plastics, and now critical minerals for EVs — will have a compounded impact throughout the entire supply chain. .The auto industry is also tightly integrated with the US which raises a whole other set of unintended consequences..Because the two countries aren’t aligned in terms of carbon policies, the imbalance could see companies and entire industries shift “to lower-cost regions” — the US — leading to what the CEC calls “carbon leakage.”.“Companies in fabricated metal and plastic and in rubber products will face a significant impact from the carbon tax due to their high exposure to trade competition from similar industries in other jurisdictions that have less stringent rules,” it said..The automotive sector is also becoming increasingly reliant on the mining of critical minerals, where energy is also a primary input into pulling them out of the ground and then processing and refining them..But its not just automobiles..Basic chemicals such as pesticides and fertilizers will take a 30% hit. Many of those products are also exported. More harmful is the trickle down effect on the agricultural sector, both in Ontario and across the country. .Which means many industries that aren’t directly impacted by the tax — restaurants — will nonetheless bear an outsized burden..“Industries such as food services and restaurants, financial services, or retail stores that are not subject to the tax directly may still experience significant cost increases if the sector relies on inputs that use energy-intensive production processes..“As this Research Brief has shown, there is no doubt that industries in Ontario will face additional costs associated with the $170 per tonne carbon tax, which will affect industry cost competitiveness,” CEC said.
