P.E.I.'s HST exemption on home heating oil is being called contradictory to its report on climate change calling on the province to encourage home and business owners to switch to "more sustainable fuel sources" including electric heat pumps and wood.

"It's actually encouraging people to use that fuel source rather than alternative fuel sources," said Chris Ragan, an economics professor at McGill University and chair of the university's Ecofiscal Commission.

Chris Ragan, chair of the Ecofiscal Commission at McGill University, argues governments should reevaluate environmental programs to see if they are still effective once a price on carbon is in across the country. (CBC)

Ragan has advised the federal and various provincial governments on policies to reduce greenhouse gas emissions.

"I think from a point of view of greenhouse gas emissions you want to ask yourself if that's the appropriate policy, and I would say that it's not."

More than 50% of Islanders heat with oil

When the P.E.I. government brought in the HST in 2013, it made home heating oil exempt from the provincial portion of the tax. Other heat sources that generate lower carbon emissions, including electricity, propane, and wood, are subject to the full tax of 15 per cent.

On Dec. 13, 2016, Premier Wade MacLauchlan told the Legislative Assembly the province would "make no change to our HST policy on home heating oil," even as it prepares to introduce a price on carbon next year.

According to a report from Dunsky Energy Consulting released earlier this month, more than half of Islanders heat with fuel oil.

Report recommended phasing out exemption

The report said developing an incentive program to help switch Islanders away from heating oil could reduce the province's carbon emissions by nearly 93,000 tonnes per year.

From a point of view of greenhouse gas emissions you want to ask yourself if that's the appropriate policy, and I would say that it's not. - Chris Ragan, Ecofiscal Commission

An earlier report from the same consulting firm had urged government to phase out the exemption for heating oil under the HST.

However, the newest version of the province's energy strategy states: "Although the initial draft of the energy strategy recommended the HST exemption on fuel oil be eliminated, the province will not implement the recommendation at this time. It is important that Islanders be first given an opportunity to reduce their energy use and reliance on fossil fuel."

When asked, the province didn't provide further comment on the issue.

'Contradictory policies' make no sense: Bevan-Baker

Maintaining the exemption while also encouraging Islanders to move away from oil "makes no sense," according to P.E.I.'s Green Party Leader Peter Bevan-Baker.

"By having contradictory policies — one which encourages a switch from fossil fuels, and one which subsidises their continued use — government is not presenting a co-ordinated approach," Bevan-Baker said. "Indeed one could say that these two policies are in direct opposition, working at cross-purposes."

P.E.I. Green Party leader Peter Bevan-Baker. (Brian Higgins/CBC News)

Bevan-Baker is recommending a move also suggested by Ragan: that P.E.I. do away with its blanket exemption on heating oil and switch to a rebate program based on income. Alberta plans to do the same thing with the introduction of its carbon tax.

Both Bevan-Baker and Ragan suggest income from P.E.I.'s carbon pricing plan could be used to offset costs to low-income households.

"That combination of policies will get you the emissions reductions that you want over the next 10 or 15 years, but it will also protect the most vulnerable households in the province," said Ragan.