Clarifying the Carbon Tax: In the Case of Canada

Carbon Pricing Canada Map
image obtained from https://delphi.ca/2018/10/your-cheat-sheet-to-carbon-pricing-in-canada/

Many Albertans, and by extension Canadians, have some degree of confusion regarding the carbon tax implemented by the Trudeau administration in 2019, recently upheld by the Supreme Court in March of this year. In simple terms, to reduce our environmental impact, the government put a price on carbon in an effort to reduce emissions. 

Before getting into the specifics of how the carbon tax applies to us as Canadians, I’d like to explore a little bit more about the different aspects of environmental policy (obviously not comprehensively, because I am not an economist). Rather than the typical understanding of the word ‘price’, meaning paying money for something that is consumed, we are paying for the amount of carbon emitted. Further, ‘carbon tax’, in most cases, actually means ‘greenhouse gas tax’, because simply pricing carbon may just encourage companies to produce other harmful emissions.

The Impact of the Federal Carbon Tax on the Competitiveness of Canadian  Industries | Fraser Institute
image obtained from the Fraser Institute

Why do we care about greenhouse gas emissions? They have increased exponentially throughout the last couple centuries, ever since the industrial revolution in the 18th century (so, human activity!). There are individual things that we can do to reduce our carbon footprint – buying sustainable fashion, eating more plant-based foods, taking public transport, or anything else we’ve talked about on this blog – but the carbon tax targets individuals and businesses. This ensures that renewable competitors are given the edge. 

At this point you may be asking, that sounds great. Why have we not done this sooner? And you’re right, carbon taxes have plenty of benefits, but they are not without cons either. Carbon taxes are a quick and effective way to take a direct step towards reducing our impact on climate change through encouraging people to take renewable steps for their personal financial gain (when in doubt, appeal to people’s self-interest). 

However, this strategy may be ineffective for both low and high-income households. On the lower end of the spectrum, the carbon tax appears regressive, given low-income individuals spend a higher percentage of their income on energy-intensive processes, such as heating their home. On the other hand, affluent households might not see additional money as much of a motivator given their means. In addition, carbon taxes operate within our current system; while overhauling the entire system is more expensive and time-consuming, it may yield more long-term effects.

Now that we have a ~snapshot~ of how the carbon tax is effective, as well as its pros and cons, we can examine how it may help us in Canada. In 2019, when the carbon tax was federally introduced, there was a minimum price of $20 per tonne, rising every year by $10 to $50 in 2022, and then by $15 every year until we get to $170 in 2030. (This magic year is due to our goal of reducing our emissions to 30% below 2005 levels by 2030). Each province can set their own taxes that meet these goals in one way or another, either by a carbon tax or a cap-and-trade system (more on that later). There are four provinces, Ontario, Alberta, Saskatchewan, and Manitoba (breadbasket!) that have not done so, so they operate under the imposition of the federal system.

There is another system that applies to these four provinces as well: tax rebates! Not a single person I know (except my dad) is confident speaking about taxes, so I’ll use a graphic made by another person more well-versed in economics: 

image obtained from https://www.futurelearn.com/info/futurelearn-international/canada-carbon-tax

This demonstrates the amount you can get back in each province depending on your living and financial situation, ensuring that low-income members of these provinces are not punished financially for switching to renewable energy options.

In summary, as Albertans we operate under the federally mandated carbon tax system. That means both individuals and businesses pay $40 (currently, in 2021) for every tonne of carbon dioxide being emitted; this encourages people to make choices to switch to renewable energy. It also drives green innovation and various initiatives to make these choices even less costly. Finally, there are rebates for low-income households so that those disproportionately affected are still able to contribute to this shift towards renewable energy.

Here are the links I used, they have a ton of helpful info!

https://www.futurelearn.com/info/futurelearn-international/canada-carbon-tax

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s