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One of the few pieces of good news in 2020 was the projected sharp drop in greenhouse gas emissions, a silver lining to the lockdowns and economic turbulence that dramatically curtailed fossil-fuel consumption.

But for residents of Ontario, Manitoba, Saskatchewan and Alberta, that good news is likely to turn into a parting fiscal bite from the coronavirus crisis in just over a year. That’s because last year’s unexpected drop in emissions will end up reducing next year’s federal carbon rebates from what they otherwise would have been.

Why is that? It comes down to the fact that Ottawa’s carbon rebates, designed to offset the added costs households pay from carbon pricing, are actually not rebates. Instead, they are prepayments, with households receiving those funds months ahead of the costs they incur.

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That means that Ottawa has to estimate ahead of time what fossil-fuel usage will be in the provinces subject to carbon pricing, what revenue will be generated in the coming fiscal year – and what the resulting payments to households will be. (The government returns 90 per cent of revenue from carbon pricing on fossil fuels to households, with the remaining 10 per cent spent on green projects.)

The government doesn’t publicize those estimates, but it does announce the result each December, in the form of the rebate amounts for households.

The federal Environment Department acknowledges that its projections in December, 2019, overestimated fossil-fuel use in 2020, meaning that carbon revenue will also come in below projections – and that the rebates that were paid out last spring were too high. (The opposite was true for 2019, when carbon revenue, and emissions, were higher than expected.)

But households won’t simply get to keep the extra money they received this year. Instead, the government carries forward any deficit or surplus in rebates, which then affects future rebate payments, detailing those amounts in an annual report on carbon pricing issued in December.

For next year, that will mean that rebate payments will be reduced from what they otherwise would have been, although the precise amount won’t be known for several months.

For this year, however, the opposite accounting took place. With the unexpectedly high emissions of fiscal 2019-20, the rebates paid out in the spring of 2019 in Ontario, Manitoba and New Brunswick fell short of the 90-per-cent threshold in several provinces, since carbon revenue rose higher than initial projections. In Saskatchewan, however, carbon revenue was slightly lower than forecast, meaning rebates to residents in that province were a little higher than needed to meet the 90-per-cent goal. Overall, Ottawa returned 81 per cent of the carbon revenue it collected in Ontario, Manitoba, Saskatchewan and New Brunswick, as the chart below shows.

That might look like Ottawa is violating its commitment to return 90 per cent of revenue to households, but the shortfall is temporary. In Ontario, for instance, higher-than-expected emissions and revenue meant that about $187.5-million was not distributed in rebates. That amount doesn’t disappear; instead, the federal government added that to rebates that will be paid this spring, making them larger than they would have been in a world where the fiscal forecasts were perfectly accurate.

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The same is true in Manitoba, where $17-million was added to this year’s funds for rebates. In Saskatchewan, however, rebates were slightly higher than they should have been, meaning that the overpayment of $1.6-million was subtracted from the funds being rebated this year. The same dynamic is at play in Alberta, but precise figures haven’t been published, because of that province’s 11th-hour transition to the federal carbon pricing regime, after the United Conservative Party scrapped the provincial carbon tax.

New Brunswick residents, however, may end up getting shortchanged. That province was subject to federal carbon pricing in fiscal 2019-20. But at the start of April, 2020, New Brunswick’s provincial levy took the place of federal fuel charges. That also meant that New Brunswickers won’t be getting rebates this spring. Ottawa will instead give the provincial government the $11.1-million that would have been added to payments this year. And, so far, the New Brunswick government isn’t saying whether it plans to pocket the money, or to forward it on to households.

Tax and Spend examines the intricacies and oddities of taxation and government spending.

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