Support for One in Five Canadians with tax rebate less than carbon tax.

The political firestorm in Canada to “Axe the Tax” appears to be aimed at repeal of the carbon pricing policy of the Trudeau government. The 20% of Canadians for whom the tax free Climate Action Incentive Payment (CAIP), as a carbon tax rebate, is less than the amount they will spend in carbon taxes may require a change in lifestyle. The concept that users of more carbon pay more carbon tax is operative in Canada.

Rebate > Tax :Tax > Rebate

Mia Rabson of The Canadian Press writing in an article reported by the Financial Post addresses the question of what the increase in carbon tax could cost in some Canadian households.

Gasoline: Going from $65 per tonne to $80, means the carbon price on a litre of gasoline will now be 17.6 cents per litre, up 3.3 cents per litre from before. That means filling a 50 litre tank from empty will cost about $8.80 in carbon price, about $1.65 more than before.

Diesel: As of today the price for a litre of diesel will include 21.39 cents in carbon price, up from 17.38 cents.

Propane: The price for propane will now include 12.38 cents a litre in carbon price, up from 10.08 cents. A standard 20-pound barbecue propane tank will cost about $2.20 in carbon price to fill, compared with $1.78 over the last year.

Natural gas: On average in Canada, households use about 2,280 cubic metres of natural gas in a year, mostly for heat. At $80 per tonne, the carbon price will add 15.3 cents to a cubic metre of natural gas, up from 12.4 cents previously. That amounts to an annual carbon price bill for natural gas of about $347 on average, compared with $282 over the last year.

Food and clothing and other goods: There are indirect costs of carbon pricing, as companies that pay the price themselves increase the cost of their goods and services to keep pace. The amounts vary by industry, but Statistics Canada estimated that carbon pricing increased the price of food by about 0.3 per cent and the price of clothes by two per cent since its inception. The effect of the latest increase has yet to be determined. (Rabson, 2017)

The price increase summary by the Financial Post shows that driving fuel efficient cars and trucks, perhaps EV’s or Hybrids, and electrifying with heat pumps will reduce the carbon tax assessment for the one in five not receiving a rebate.

Building large homes and flying to vacation get-a-ways are two choices that some of the 20% are encouraged to reconsider as the carbon rebate covers less of their tax burden.

Clutch, with mission is to deliver a delightful car⁠-⁠buying experience to Canadians, has a web page to learn more about the carbon tax rebate, including why it exists, variances among provinces, and how it can help our wallet and the planet. The one in five Canadians who have a rebate that does not cover their tax are reminded to consider the impact of provincial government policy on the levy they pay.

For example, Quebec and Nova Scotia (previously implemented) a cap-and-trade system allowing provincial (or municipal) governments to set caps for carbon emissions by industry. Companies can then buy and sell carbon credits in an open market when they are over or below the cap. Some provinces also attempted to limit the increase in fuel and heating costs through lower individual taxes on gas, oil, propane, and natural gas. This helps alleviate the financial burden on residents and puts it upon the government through lowered taxes. Carbon taxes vary between provinces because provincial governments, and to some degree, individual municipalities, can set their own carbon taxes as long as they meet the federal government's requirements. (A Quick Guide to the Carbon Tax Rebate in Canada, 2024)

Canadian economists have released an open letter to add professional knowledge to the important discussion of the role of carbon tax in reducing GHG emissions in our efforts to mitigate the effects of climate change. Five claims by carbon tax critics are addressed by presenting evidence.

Solutions for the one in five Canadians who pay more carbon tax than their Climate Action Incentive Payment (CAIP) covers may lie in decisions to decrease their transportation and heating costs and emissions.

References

A Quick Guide to the Carbon Tax Rebate in Canada. (2024, February 27). Clutch Blog. Retrieved April 2, 2024, from https://blog.clutch.ca/posts/carbon-tax-rebate-canada 

Rabson, M. (2017, November 9). Carbon tax 101: What the increase could cost you and your household. The Financial Post. Retrieved April 2, 2024, from https://financialpost.com/commodities/energy/oil-gas/carbon-tax-increases-april-1-2024 

Canadian Economists explain Carbon Tax.

Laura Osman of the Canadian Press, in an article in the Globe and Mail notes that every province and territory in Canada has been subject to a carbon price since 2019, with a choice between enacting their own version that meets federal standards or using a federal program. Most use the federal version for consumers and small businesses, while most have their own system for big industry. Conservative Leader Pierre Poilievre has promised to make the carbon price the central issue in the next election.

Canada is number ten for historic GHG

Economist Chris Ragan, director of the Max Bell School of Public Policy at McGill University, who helped draft an open letter defending the policy comments that: 

“The issue has clearly been heating up,... The quality of the debate, I think, is not quite as good as it should be.” (Osman, n.d.)

Ragan said he hopes the economists’ letter better informs that debate, and gives ammunition to politicians who are defending the policy. Ultimately he wants to see the carbon price become politically mainstream.

While the main political criticism of the program is the cost to consumers, the economists say a carbon price is actually the least costly way to lower emissions.

“Other methods, such as direct regulations, tend to be more intrusive and inflexible, and cost more,” the letter states. (Osman, n.d.)

Canadian economists have released an open letter to add professional knowledge to the important discussion of the role of carbon tax in reducing GHG emissions in our efforts to mitigate the effects of climate change. Five claims by carbon tax critics are addressed by presenting evidence.

Claim #1: Carbon pricing won’t reduce GHG emissions.

Evidence shows it reduces GHG emissions at a lower cost than other approaches. The Canadian Climate Institute shows that federal and provincial carbon pricing, for industries and consumers, is expected to account for almost half of Canada’s emissions reductions by 2030. Carbon pricing is the lowest cost approach because it gives each person and business the flexibility to choose the best way to reduce their carbon footprint. Other methods, such as direct regulations, tend to be more intrusive and inflexible, and cost more. (An Open Letter From Economists on Canadian Carbon Pricing, n.d.)

Claim #2:  Carbon pricing drives up the cost of living and is a major cause of inflation.

Evidence shows that Canadian carbon pricing has a negligible impact on overall inflation. According to the Bank of Canada, carbon pricing has caused less than 1/20th of Canada’s inflation in the past two years. Most families receive more money in rebates than they pay in carbon pricing, particularly those with low or medium incomes. (An Open Letter From Economists on Canadian Carbon Pricing, n.d.)

Claim #3:  It makes little sense to have both a carbon price and rebates.

Evidence shows that the price-and-rebate approach provides an incentive to reduce carbon emissions (due to the price), while maintaining most households’ overall purchasing power (due to the rebate). Carbon pricing works by raising the price of carbon-intensive products, so consumers and businesses are incentivized to adopt lower-carbon options, such as smart thermostats, heat pumps, or hybrid/electric vehicles. Those that reduce emissions the most will come out further ahead; they will pay less in carbon fees but still get the full rebate. (An Open Letter From Economists on Canadian Carbon Pricing, n.d.)

Claim #4: Carbon pricing harms Canadian business competitiveness.

The output-based system is designed to maintain industries’ competitiveness: ensuring that the carbon price does not hamper their ability to stay profitable and generate jobs in Canada while competing internationally. In addition, carbon pricing stimulates innovation by encouraging the development and adoption of low-carbon technologies. These incentives help Canadian businesses—in all sectors—stay competitive in the global transition to a low-carbon economy. (An Open Letter From Economists on Canadian Carbon Pricing, n.d.)

Claim #5:  Carbon pricing isn’t necessary.

Canada has many economic challenges to address. In a world of scarce resources, it seems imprudent to abandon carbon pricing, only to replace it with more costly methods of reducing emissions—or, worse still, take no measures to reduce emissions. In short, carbon pricing is the least-cost way to reduce emissions, drive green innovation, and support Canada’s transition to a clean and prosperous economic future. (An Open Letter From Economists on Canadian Carbon Pricing, n.d.)

Skilled tradespeople are employed to do serious construction and maintenance. Health Professionals are charged with our well being. Economists have the expert skill to assess the effect of climate change policy on our financial situation and future well being of Canada in a low carbon economy.

References

An Open Letter from Economists on Canadian Carbon Pricing. (n.d.). Retrieved March 27, 2024, from https://sites.google.com/view/open-letter-carbon-pricing 

Osman, L. (n.d.). Economists defend Liberals’ carbon price as political rhetoric heats up. Wikipedia. Retrieved March 27, 2024, from https://www.theglobeandmail.com/business/article-economists-defend-liberals-carbon-price-as-political-rhetoric-heats-up/ 

Facts and Four Points

The slogans “Axe the Tax” and “Build the Homes” resonate with major economic concerns of Canadians. The devil is in the details when we study the best way to implement effective taxation that accomplishes our need to address climate change and finance the building of the housing needed to address emergency homelessness in our country.

How to Action The Slogans 

Aaron Wherry of CBC News reports that beneath the back-and-forth over the Liberal government's carbon tax and the Conservative leader's agenda, Justin Trudeau and Pierre Poilievre are also duelling over very different theories of change.

Much of what's wrong with the way things are can be traced, Poilievre suggests, to higher levels of federal spending under Trudeau. For Poilievre, that spending marked a particularly dramatic break with the past and with a historic consensus.

"Balancing the budget to keep inflation and interest rates low was the unanimous policy of all the major political parties at all levels of government for 30 years, right up to the radical departure [in 2015]," he said. 

Wherry points out that if the way things were in 2015 is to be a point of reference, it's equally fair to note how much higher greenhouse gas emissions were projected to be back then, how many more Indigenous communities lacked access to clean drinking water, how many more children were living in poverty and how much higher child care fees were. (Wherry, 2024)

Things are changing — the planet's climate certainly is. And Trudeau can argue that significant parts of his government's agenda have been about meeting the need for change and preparing Canadians for the future.

But it's on his ability to "tackle" the problems of today that he is being challenged — and earlier action on housing would have put him in a better place now, even if provincial and municipal governments deserve significant amounts of blame for the current situation.

Opposite Trudeau, Poilievre is laying the rhetorical groundwork to do things very differently — even if he frames it in terms of simply changing things back to way they were. The more he can convince people that the country is in terrible shape — and that everything currently wrong with it can be blamed on Trudeau — the easier it becomes for him to justify doing something close to the opposite. (Wherry, 2024)

Paul Kershaw, in a special article in the Globe and Mail, comments that if you make a mess, you should help clean it up. That’s a responsibility his Mom taught him.

As the House of Commons returned to session, Pierre Poilievre, the Conservative Leader, betrayed this family value by courting voters with his promise to eliminate responsibility to pay for our pollution.

Whether to pay for pollution isn’t about consumer preferences. It’s a duty we owe to our kids. We need our politicians to recognize as much if they are to identify real solutions to the affordability crisis, and to reduce risks from extreme weather.

A new Abacus poll signals Mr. Poilievre has convinced many Canadians that the price on pollution is a primary source of financial pain. Alas, research from the University of Calgary shows he is pulling the wool over our eyes. (Kershaw & Urback, 2024)

Professors Trevor Tombe and Jennifer Winter in a report for the School of Public Policy, University of Calgary, calculated the direct and indirect costs of the carbon tax to examine the entire financial impact of the tax relative to its absence. They use data from British Columbia, where the carbon price is the same as that levied by the federal plan. They found that carbon pricing adds 0.5 per cent to the cost of food and beverages; 0.29 per cent to rent; 0.2 per cent for clothing and footwear; and less than 0.13 per cent for insurance and financial services.

While some politicians and policymakers are blaming emissions pricing for high costs of living, the figure shows that the actual effect is quite modest for most items.

Emissions pricing is just one of many indirect taxes that households face. Other examples are sales taxes and alcohol levies. We estimate that the combined effect on Canadian consumer prices from all indirect tax increases between January 2015 and October 2023 was 0.6%.

Knowing that much of the present affordability crisis is due to factors other than emissions pricing, the elimination of the carbon tax is unlikely to solve the problem. As Canada slowly recovers from high inflation in 2021 and 2022, policy makers will need to consider alternative solutions. (Tombe & Winter, n.d.)

Geordie Dent, in an article for The Breach, concludes that cheap money and privatization made housing unaffordable, but organizing can reverse the tide

Canada used to build a decent amount of social housing. By ensuring that low-income renters had affordable options, the government kept the market honest and stopped housing speculation from spiraling into feedback loops.

Until around 1993, Canada funded the construction of 10,000 or more social housing units in a typical year. 

So what happened in 1993? That’s the year the federal Liberals were elected on a platform of progressive promises. But once in power, they pivoted to a policy of fiscal austerity. Finance Minister Paul Martin slashed housing spending to almost nothing. 

The construction of housing had been completely privatized. (Dent, 2023)

The recent climate disasters in Canada require a taxation strategy to incentivize transition to a carbon reduced economy. Research shows the additional tax burden adds less than 1% to most of the purchases of Canadians. Because we cannot expect the market to build below market housing, social housing for Canadians living in tents needs to be a Government responsibility.

References

Dent, G. (2023, February 2). The global money pool that soaked Canada's hope of affordable housing ⋆ The Breach. The Breach. Retrieved February 4, 2024, from https://breachmedia.ca/the-global-money-pool-that-soaked-canadas-hope-of-affordable-housing/? 

Kershaw, P., & Urback, R. (2024, February 2). Pushing to 'Axe the Tax' is unfair to our kids. The Globe and Mail. Retrieved February 4, 2024, from https://www.theglobeandmail.com/investing/personal-finance/young-money/article-pushing-to-axe-the-tax-is-unfair-to-our-kids/ 

Tombe, T., & Winter, J. (n.d.). ENERGY & ENVIRONMENTAL EMISSIONS PRICING AND AFFORDABILITY: LESSONS FROM BRITISH COLUMBIA. The School of Public Policy. Retrieved February 4, 2024, from https://www.policyschool.ca/wp-content/uploads/2023/12/EE-Trends-DEC.pdf 

Wherry, A. (2024, February 3). Trudeau and Poilievre have very different theories of change. CBC. Retrieved February 4, 2024, from https://www.cbc.ca/news/politics/trudeau-poilievre-election-1.7103710? 

Experts in Economics and Climate Policy

Some comments in the Chris Hatch, Zero Carbon newsletter for November 5 2023, highlight the struggle to have political pronouncements refer to expert analysis of policy like the carbon tax in Canada.

Economist's take on the Tax

“The carbon tax is dead,” laments Trevor Tombe, a professor of economics and a carbon tax supporter. “It all unravels from here” is the widespread view among economists who have been championing carbon pricing as the most “efficient” way to cut greenhouse gas emissions. (Zero Carbon Newsletter | Canada's National Observer: News & Analysis, n.d.)

Angela Köppl and Margit Schratzenstaller have published  Carbon taxation: A review of the empirical literature in the Journal of Economic Surveys. The conclusion of their study includes attention to the big picture of climate change. Public acceptance of carbon taxes can be increased by providing public information, avoiding negative distributional effects, and channeling part of the revenues into "environmental projects."

Environmental taxes in general and carbon taxes in particular need to be considered in a broader perspective in the context of climate change, and it is important to keep in mind that the transition to climate neutrality requires a profound structural change that cannot be achieved through incremental (political) steps. The focus therefore needs to be on a broader policy mix that integrates a wide range of policy interventions such as price-based instruments, subsidies, standards, and public infrastructure investments, and not to forget the greening of finance. (Köppl & Schratzenstaller, 2019)

The researchers have made several recommendations that can be derived based on the results presented in their report.

✔️		Eight Characteristics of Effective Carbon Tax Policy
	1	Carbon tax at a sufficiently high level to trigger emissions reduction and innovation.
	2	Two contradicting objectives need to be balanced carefully. Exemptions will undermine environmental effectiveness of carbon taxes and will improve acceptance and public support.
	3	Revenue recycling is important to increase public support and acceptance and to mitigate undesirable distributional effects. Recycling schemes should be created in a way to support innovation and employment.
	4	Revenue recycling schemes cutting the labor tax burden seem to be more favorable regarding macroeconomic effects compared to lump-sum revenue recycling, whereas the latter is more supportive regarding public acceptance. Policymakers therefore should consider both mechanisms when designing carbon taxes and recycling schemes.
	5	Compensation measures to cushion off regressive effects should also account for socio-demographic household characteristics.
	6	Information and communication are important to secure public support for carbon taxes. On the positive impact of the carbon tax on emissions reduction and on the future costs of inaction in a business-as-usual scenario.
	7	Present the broad theoretical and empirical consensus on the usefulness of environmental taxes in general and carbon taxes in particular. Take into account both the system boundaries and the specific political context as well as general socioeconomic conditions and policy styles in the country concerned.
	8	More evidence is needed to enable the diffusion of experience and knowledge gained on the effectiveness of climate policy instruments across countries.

First of all, carbon tax rates should be implemented at a sufficiently high level in order to trigger emissions reduction and innovation.

Second, exemptions which on the one hand very likely will undermine environmental effectiveness of carbon taxes, will on the other hand improve acceptance and public support; therefore, these two contradicting objectives need to be balanced carefully.

 

Third, revenue recycling is important: to increase public support and acceptance, but also to mitigate undesirable distributional effects. If possible, recycling schemes should be created in a way to support innovation and employment. 

Fourth, revenue recycling schemes cutting the labor tax burden seem to be more favorable regarding macroeconomic effects compared to lump-sum revenue recycling, whereas the latter is more supportive regarding public acceptance. Policymakers therefore should consider both mechanisms when designing carbon taxes and recycling schemes.

 

Fifth, compensation measures to cushion off regressive effects should not only consider vertical distributional effects, but should also account for horizontal aspects, that is, socio-demographic household characteristics. 

Sixth, information and communication are important to secure public support for carbon taxes: not only with regard to the positive impact of the carbon tax on emissions reduction and further co-benefits, but also the future costs of inaction in a business-as-usual scenario.

Finally, apart from the broad theoretical and empirical consensus on the usefulness of environmental taxes in general and carbon taxes in particular, any specific policy reform must take into account both the system boundaries and the specific political context as well as general socioeconomic conditions and policy styles in the country concerned.

Last but not least, more ex-post evidence is urgently needed to enable the diffusion of experience and knowledge gained on the effectiveness of climate policy instruments across countries (Carraro et al., 2015), as informed policymaking requires sufficient empirical evidence (Green, 2021). (Köppl & Schratzenstaller, 2019)

Chris Hatch, in the Zero Carbon newsletter, regrets that the debate has become fixated on carbon taxes instead of carbon emissions. 

You’ll often hear that carbon pricing is the cheapest way to drive cuts in climate pollution. And that there’s evidence it works. That evidence exists but, frankly, it’s not overwhelming. Pricing does seem to work but the effects are modest and usually accompanied by bigger carbon cuts from regulations.

There seems to be no way forward that won’t be a messy combination where regulation does the heavy lifting supplemented by pricing and incentives. Industry always fights regulations but there’s a long history of successful ones that industries claimed they could never survive.

How did Ontario phase out coal? Regulations.

How is Alberta phasing out coal? A combination of regulations and pricing.

How did we get lead out of gasoline? Regulations. 

Acid rain? Regulations that allowed pricing and trading. 

The ozone hole? A regulated phaseout of the chemicals causing the problem. (Zero Carbon Newsletter | Canada's National Observer: News & Analysis, n.d.)

The rejuvenation of carbon pricing in Canada should be based on the research and expertise of economists who have a track record of research in the subject. The “feeling” of disgruntled provincial premiers and the populist dog whistle of “Axe the Tax” are political slogans that do nothing to advance our need for programs that are based in the research of experts and our experience with past regulatory regimes to effect the changes necessary to reduce the extremely expensive damage from future wildfires, floods, and hurricanes.

References

Köppl, A., & Schratzenstaller, M. (2019, March 9). Carbon taxation: A review of the empirical literature. Wiley OnLine Library. Retrieved November 8, 2023, from https://onlinelibrary.wiley.com/doi/full/10.1111/ 

Zero Carbon newsletter | Canada's National Observer: News & Analysis. (n.d.). National Observer. Retrieved November 8, 2023, from https://www.nationalobserver.com/newsletters/zero-carbon