President Trump’s tariffs are posing a major barrier to his plans to expand U.S. oil production — or, in his words, “drill, baby, drill.”
Since the tariffs were announced last week, oil prices have fallen to hover around $60 per barrel, a nearly four-year low, Rebecca Elliott reported. At this price, fossil fuel companies will most likely re-examine their plans.
“That is really a psychological and financial threshold for a lot of the industry,” she told me. “Below that level, you start getting wells that are no longer economic to drill.”
Oil companies are being squeezed by both rising costs and falling prices. Tariffs on steel have pushed up the cost of new wells by 10 or 20 percent, according to some estimates. And oil prices are falling over concerns about a potential economic slowdown coupled with OPEC’s recently announced plans to increase production.
If prices stay low, or fall further into the $50 range, which more and more of the people Elliott spoke to think is possible, U.S. oil production could flatten out, or even decline, she said.
How will all of this affect the fight against climate change? While slower economic activity tends to lead to lower greenhouse gas emissions in the short term, it’s not clear whether that would outweigh the climate effects of a slowdown in building renewables like wind and solar.
The changes have oil and gas executives, who donated generously to the Trump campaign, privately seething, Elliott reported today.
Climate policy
Why Canada’s carbon tax failed
Last week, amid a growing trade war with the U.S. and political upheaval domestically, Canada officially ended one of the world’s first carbon taxes.
The country’s rollback of its consumer carbon tax is a step backward for carbon pricing models, which many economists and activists have long seen as one of the simplest and most efficient ways to drive down emissions. While the tax’s demise is part of a global trend in which politicians have prioritized affordability over decarbonization, the death of Canada’s consumer carbon tax carries a few lessons about devising and communicating climate policy.
First enacted in 2019, Canada’s tax was a fee that consumers paid on energy-intensive expenses like gasoline and home heating bills. Most of the money was sent back to taxpayers in the form of rebates deposited directly into their bank accounts.
The tax was projected to reduce the country’s emissions by 8 to 14 percent by 2030. (A separate Canadian carbon tax aimed at industrial emissions remains in place.)
People tend to hate new taxes, especially if they show up as a highly visible line item on a receipt, as Canada’s consumer carbon taxes did. And in some ways, the tax was especially primed for unpopularity: It was an added fee on day-to-day essentials, and its rollout coincided with a time of high inflation.
Even though 90 percent of the tax’s revenue was eventually returned to taxpayers, many Canadians didn’t realize they were getting their money back. A key criticism of the tax is that it was very poorly explained.
“The consumer carbon tax has been this strange issue in Canada over the last few years in that, by our calculations, it maybe contributes 10 percent of the solution, but yet it’s occupied 95 percent of the airtime,” said Rick Smith, president of the Canadian Climate Institute, a nonpartisan think tank. “There’s just a complete disconnect between its actual effectiveness and its divisiveness.”
When Mark Carney, a centrist, became leader of the Liberal Party and Canada’s prime minister in March, replacing the longtime leader Justin Trudeau, he announced the repeal of the consumer carbon tax on his first day in office. The move was seen as deeply cynical: Carney, one of the world’s most prominent economic policymakers and an evangelist for green policy and investment, had been a longtime advocate for carbon pricing.
Gas prices in Canada fell sharply after the change went into effect. The Liberal Party has made gains in the polls in recent days because of Trudeau’s resignation and President Trump’s menacing statements and tariffs on Canada, which are giving Carney a leg up.
How the tax worked
Canada’s consumer carbon tax was devised more like a bottle tax than a sales tax. With a U.S. bottle tax, shoppers in certain states pay 5- or 10-cent fees on each beverage bottle or can they buy at the grocery store. They can get refunds if they return their bottles and cans to a recycling center.
Residents paid more for gasoline and home heating up front, but the government returned 90 percent of the revenue to households through tax refunds. Households of the same size in the same province all got the same refund, regardless of how much they spent on gas and heat.
The idea was that the tax would nudge people toward consuming less fuel and natural gas without having a major long-term impact on their wallets. More than 80 percent of people received rebates that were higher than their out-of-pocket expenses, Smith said.
As a bonus, there was no cumbersome trip to the recycling center: Canadians automatically received the refunds without filling out additional paperwork.
Why it was so unpopular
The trouble with the refund model was that a lot of people didn’t realize they were getting their money back, said Trevor Tombe, economics professor at the University of Calgary. The payments would show up in people’s bank accounts without clear labeling, and in the early days they were lumped in alongside annual tax returns, in some cases as part of a single payment.
The Canadian government eventually began sending people quarterly refunds. But starting in 2021 and 2022, the taxes coincided with a period of rising inflation. As prices rose, some Canadians saw the carbon taxes as part of the problem. Consumer carbon taxes were directly pushing up the price at the pump, by about 18 cents per liter by 2025, and it seemed to many as though taxes on industry were also indirectly contributing to higher prices across the board.
To make matters worse, the carbon taxes were scheduled to increase as inflation was making everything more expensive. Rather than ease off until prices stabilized, the Canadian government chose to keep the scheduled fee increases in place.
Tombe’s research, which analyzed data from 2019 to 2024, found that carbon prices actually had a very small impact on inflation during that time period. Whereas overall food prices rose by around 26 percent, carbon taxes were responsible for only about half a percentage point of that increase.
Lessons learned
Tombe said it might make sense for future carbon pricing models to build in flexibility that pause or slow tax increases in times of economic uncertainty.
“Ultimately, carbon pricing is aiming at very long-term behavioral change,” he said. “I’m not sure we would have lost much to make some short-term adjustments to ease some of the burden while prices were rising rapidly for other reasons.”
Tombe also pointed to another lesson: Governments should try to to connect the dots between taxes and government spending. This echoed a similar complaint that was leveled against the Biden administration over its failure to inform some voters about its climate and pandemic-era spending programs.
In Canada, that might’ve meant sending notifications to taxpayers letting them know that they were receiving carbon tax refunds. In the U.S., President Trump did something similar in his first term when he sent voters checks with his signature on them as part of his Covid relief package.
Smith said he’d like to see Canada refocus on effective climate policies, like the industrial carbon tax, which is projected to reduce emissions nationally by 23 to 39 percent by 2030, according to research from his organization. He also thinks there’s an opportunity for Canada to invest in decarbonization efforts that save money and reduce emissions at the same time, like hydroelectric power and nuclear energy.
“Virtually all politics in the United States and Canada, globally, are being driven by affordability concerns these days,” he said.
Ask NYT Climate
Should I ditch my gas appliances?
About 7 percent of all greenhouse gas emissions in the United States come from fossil fuels burned inside homes for things like heating, cooking and cooling.
That’s bad for the climate and, sometimes, bad for your health. Gas stoves, in addition to those planet-warming emissions, release toxic pollutants directly into the home.
Depending on where you live, though, there could be an alternative. You might be able to lower your contribution to climate change, and save your lungs, by replacing natural gas appliances with electric ones.
When and how to do this, though, is a personal choice that depends on a number of factors. Here are some things to take into consideration. — Rachel Nuwer
