Carbon pricing helps most Canadians

Felix writes*

In 2019, the Canadian government established a carbon tax of C$20/tonne of CO2e. This tax increased by $10 per year to 50$/t in 2022, and it is now increasing by $15 per year towards a target of $170/t in 2030.

The tax aims to change consumer behavior, thus 90% of the money collected is returned, as a “rebate”, to Canadian households, with the remaining 10% going to companies, farmers, and Indigenous groups (Canada, How Carbon Pricing works). The rebate means that around 80% of Canadian households get more money back than they pay with the tax; only the 20% of households pay more than they receive.

This tax has proven its efficiency in lowering carbon emissions and the previsions made by the Environment and Climate Change Canada (ECCC) in a report from the the Parliamentary Budget Officer (PBO) states that in 2030, Canada will have reduced its emissions by 62 Mt, compared to a scenario without carbon pricing. However, this reduction comes with a decline of 0.9% of the GDP (PBO report).

That decline fuels criticism by opposition politician Pierre Poilievre (head of the Conservative Party of Canada), who claims the carbon tax “takes money out of people’s pockets” (National Observer).

Using the same rhetoric, the Fraser institute — accused of misleading Canadian voters by Doug Aldlamont — claims that the 170$/tonne tax in 2030 will lower GDP by 1.8%, permanently destroy 185,000 jobs, andcost the average employed Canadian $1,540 per year, even after the rebate (Fraser Institute and Fraser report). The Frazer reports have not been peer-reviewed.

The Fraser Institute is a registered charity, but 9 of its 47 directors and many of its donors are linked to the oil, gas, and coal industries (Desmog).

In response to this skeptical discourse, Aaron Cosbey, senior economist with the International Institute for Sustainable Development, says the PBO report is misleading because it focuses on costs and omits the benefits of carbon pricing. Cosbey says Poilievre misrepresents climate policy by presenting it uniquely through immediate costs, such as fuel or heating bills. Cosbey argues that Canadian dependence on fossil fuels will lead to financial struggles in the long term, so the carbon tax is helpful in incentivizing them to shift to electric vehicles, heat pumps, and induction stoves that are more affordable in the long run (National Observer).

A 2024 Abacus Data survey of 2,199 Canadian adults found that 41% of respondents believed that the rebate did not compensate the carbon tax for the majority of people, 43% doubted the efficacy of the policy in reducing greenhouse gas emissions, and 47% thought that broad price increases were caused by the carbon tax. These perceptions come from unjustified political claims (Abacus Data).

Bottom line: The carbon tax has proven its effectiveness while helping 80% of Canadian households, but its political opponents have succeeded in casting doubt on its success.


* Please help my Environmental Economics students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

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