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The joy of carbon taxation

by Mark Sabourin
EcoLog, 9/28/2018 12:15:00 PM

Canadians who find themselves under the federal backstop carbon pricing plan come January 1, 2019 may have something to cheer about. An analysis, “Federal Carbon Price Impacts on Households in Alberta, Saskatchewan and Ontario”, by Dave Sawyer of EnviroEconomics Inc. and supported by Canadians for Clean Prosperity concludes that the federal rebate of provincial carbon revenues will surpass the cost of carbon pricing for most households.

Ottawa has firmly committed to returning carbon pricing revenues it collects to the province that paid it, but it has retained the option of rebating revenues directly to residents rather than to the provincial government. In recent months, it has hinted strongly that a rebate to households is its preferred option.

Sawyer’s model projects federal carbon pricing revenues in Ontario and Saskatchewan, both of which have rejected carbon pricing and will likely find themselves under the federal backstop, and Alberta, which has its own carbon pricing scheme and will not be under the federal plan. Sawyer’s model also estimates the carbon cost to households under a range of scenarios. In almost all cases, the federal rebate exceeds the cost paid by households, with the greatest benefit being felt by lower income earners.

“Carbon dividends show that it is possible to fight climate change and save money,” said Mark Cameron, executive director of Canadians for Clean Prosperity in a release.

A household rebate will not undermine the objective of carbon pricing, explains Brendan Frank, research associate at Canada’s Ecofiscal Commission, in a new blog, "How carbon dividends affect incentives (hint: they don’t)". The federal carbon price will still serve as a price signal to shift behaviour away from carbon-costly choices, while the rebate will simply serve as a welcome addition to household income.

Returning revenues directly to households rather than to provinces may not be the best option for the climate, however. Provincial governments might be persuaded to invest those revenues in programs that further reduce emissions. But sending money directly to households will have undeniable political appeal to a federal government that is now being raked over the coals in Ontario and Saskatchewan on the issue of carbon pricing.

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