The federal government's carbon tax came into effect on April 1, 2019. The subject has been making national headlines for quite some time already and raises a lot of questions for many. To provide some clarification on the matter, the Gazette has called on the expertise of Nicholas Rivers, uOttawa Associate professor at the Graduate School of Public and International Affairs and Canada Research Chair on Climate Policy and of Energy.
Why a carbon tax?
Carbon dioxide is a by-product of burning fossil fuels such as oil (gasoline), natural gas and coal.
Human-generated emissions of greenhouse gases, including carbon dioxide, are changing the climate.
Climate change will impose heavy social costs in terms of mortality, productivity, displacement, conflict and more.
These costs are not reflected in the price of oil, natural gas and coal, so we tend to consume too much.
A carbon tax is a levy that is added to the cost of fossil fuels, to reflect the social costs that they represent.
What is the goal of carbon pricing?
A carbon tax makes polluters pay for the environmental damage they cause.
It provides incentives for people and businesses to reduce emissions.
What’s going on in Canada?
In March 2016, the provinces and the federal government signed the Vancouver Declaration:
First Ministers commit to transition to a low carbon economy by adopting a broad range of domestic measures, including carbon pricing mechanisms, adapted to each province’s and territory’s specific circumstances.
Each province had to implement a carbon price by start of 2019, or the federal government would apply a “backstop carbon price.”
Yukon, the Northwest Territories and Nunavut are largely following the same federal plan being implemented in provinces that have not developed their own plans.
How does the federal backstop carbon price work?
The backstop only applies to the four provinces that do not have a carbon price in place: Saskatchewan, Manitoba, Ontario and New Brunswick
There are two separate components:
- A large emitters output-based pricing system starting January 1, 2019
- A fuel charge for small emitters starting April 1, 2019
Carbon pricing increases from $20/tCO2 in 2019 to $50/tCO2 in 2022.
Gasoline prices increase by 4.4 cents /litre (5%) to 11.1 cents/litre (10%)
Natural gas price increase by 4 cents /m3 (10% residential bill) to 10 cents/m3 (25%)
Revenue from the carbon tax remains in the province where it was collected, and is given back to households in the form of a tax rebate to offset the impact of the tax.
Will carbon pricing reduce emissions?
Economists have studied how individuals and businesses respond to energy price changes for decades. There is very robust evidence that when energy prices increase, individuals and businesses respond by reducing consumption.
Will a carbon tax cause a recession?
Formal economic models used by governments, the private sector and academics find that carbon taxing will have a minimal impact on the economy.
Is a carbon price a tax grab?
No. The government is not keeping any carbon tax revenue.
90% of the fuel levy is rebated to households via a refundable income tax credit.
10% of the fuel levy will be used to offset additional costs to small and medium enterprises, municipalities and institutions such as hospitals and schools.
Will a carbon tax make life unaffordable?
Rebates help to offset increases in pricing.
There is no evidence of increases to the cost of living in provinces that have implemented carbon pricing.
What are the Canadian emissions reduction targets?
30% below 2005 levels by 2030
Near 0 by 2050