The federal Liberals have hammered at a key political message on carbon pricing for three years: Most households get back more money in credits than they pay.
That has always been a narrowly constructed argument, one that ignores the costs to consumers of other federal climate change policies, including standards for clean fuel and clean electricity. But the implication was broad, namely that the transition to a green economy wouldn’t be a hardship for most Canadians.
Now, a new study from the non-profit group Clean Prosperity attempts to provide an accounting for the entire portfolio of federal carbon policy, concluding that most middle- to lower-income households will still be net beneficiaries by 2030 because carbon-pricing payments will be larger than direct and indirect carbon costs. Under federal carbon pricing, households receive annual payments to offset carbon costs as part of personal income-tax filing.
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Michael Bernstein, executive director of Clean Prosperity, said he believes his organization’s costing effort is the first to attempt to put a price tag on Ottawa’s entire climate strategy. That effort, released just ahead of the 26th UN Climate Change Conference, includes both direct costs from carbon pricing and indirect costs, including the output-based pricing system for regulating industrial emissions.
As the chart below shows, the study indicates that households with incomes under $108,000 would be beneficiaries in 2025. By 2030, net costs would have risen slightly, particularly for higher income households, so that households with incomes under $87,000 would be net beneficiaries.
Even for higher-income households, the costs are relatively modest. The annual average $1,057 cost for households with more than $162,000 in income amounts to less than 1 per cent of gross income, at the low end of that household group.
But Clean Prosperity’s analysis does show net benefits declining across households, largely because policies beyond carbon pricing start to kick in after 2025 – and those policies do not have rebates attached to them.
“The costs are accelerating faster than revenue from carbon pricing,” Mr. Bernstein said.
A second, smaller factor is the impact on carbon-pricing revenues as emissions start to decline. Even though the amount charged per tonne of greenhouse gas emissions is slated to rise each year, the number of tonnes is projected to fall. Initially, that will reduce growth in carbon pricing revenue that is then redistributed to households. At some point, revenue will fall.
There are some significant caveats attached to the study’s conclusions, including that the Liberal government has yet to spell out many of the policies in any great detail.
Another big asterisk is the study’s assumption that the federal carbon pricing and payment system applies across Canada. It does not. That’s true only in Alberta, Saskatchewan, Manitoba and Ontario. Quebec and Nova Scotia do not have carbon pricing systems at all, instead relying on cap-and-trade regulations to achieve greenhouse gas emissions reduction targets. The other three Atlantic provinces and British Columbia have carbon pricing, but don’t send rebates to households as is the case under the federal system.
British Columbia’s own numbers for carbon costing indicate that households there face net costs at relatively lower income levels. Budget documents state that an unattached individual with a household income of $80,000 pays a net carbon charge of $274, once any targeted rebate payments are subtracted.
The finance ministry said in an e-mail that such a person would also receive $238 from cuts to personal income-tax rates that the province made in the early years of its carbon tax. That would leave a B.C. resident worse off than the national average for that income level, although the finance ministry noted that other tax rebates and benefits that have been implemented since the introduction of the carbon tax could change net costs for households.
Clean Prosperity did supply projections just for Ontario, where federal carbon pricing and rebates are in effect. As this second chart shows, the Ontario-only estimates are broadly in line with the national averages.
Those projections indicate that Ontario residents fare a little better than the national average. For the most part, that’s because heavy emitters are a relatively smaller part of the province’s economy, and so have smaller costs to pass on under the cap-and-trade system for industry.
Clean Prosperity’s modelling is also broadly in line with estimates from the Parliamentary Budget Officer in early 2020, which indicated that the majority of households would receive rebates larger than the costs from carbon pricing and the output-based pricing system.
Nicholas Rivers, Canada Research Chair in climate and energy policy at the University of Ottawa, said the Clean Prosperity report is a rare example of an effort to lay out the cost of climate policy at a household level. The study is “fairly optimistic” in its assumption that current federal climate policy will achieve Canada’s climate goals, he said, but he agreed with its conclusions that household energy costs will not rise substantially.
However, Prof. Rivers noted that there is an incomplete accounting of those costs, since the study does not include carbon costs that companies do not pass on to customers. Those costs do not disappear, he said, but show up as reduced profits or as a reduction in future wages.
In either case, individuals eventually pay the bill, he said, either as shareholders or employees. For some workers, that bill will be steep – a lost job. That is not a widespread concern, but it is a prominent one for those working in manufacturing and heavy industry, particularly the oil-and-gas sector.
“Even though not many people will be in that position, it’s clearly existential to them,” Prof. Rivers said.
That existential threat underscores the need for retraining and income-support programs as part of the transition to a greener economy, he added.
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