Canadians will pay more on carbon pricing than Ottawa gives them in rebates, watchdog says

OTTAWA—Most households paying the federal carbon levy on fuel will see a “net loss” in the coming years even after rebates meant to cover the costs of the tax are taken into account, Parliament’s budget watchdog estimated Thursday.

The finding — which expands on a previous conclusion published last year — undermined the Liberal government’s familiar defence of its signature climate policy, and gave the opposition Conservatives a fresh chance to denounce the federal carbon price they have long promised to scrap.

It also highlighted the delicate political dance, on evidence again in this week’s federal budget, of balancing national economic concerns with the global imperative — which is only getting more urgent, scientists say — to fight climate change.

Since introducing a federal minimum carbon price in 2018, the Liberals have said most households — including in Ontario — would end up earning more money through “climate incentive” rebates than they pay because of the fuel levy.

That remains true if you only compare the size of the rebates and the raw dollars paid because of the carbon price, according to Canada’s Parliamentary Budget Officer (PBO). But if you also consider the wider economic impact of the carbon price, which would lead to lower overall incomes and investments, then average households will experience a “net loss,” the PBO estimated Thursday.

What’s more, that overall loss will increase as the carbon price is set to climb from $65 per tonne of greenhouse gas emissions this year to $170 per tonne in 2030, the PBO found.

An average household in Ontario, for example, would be down $478 in the 2023-24 fiscal year. That loss would climb to $1,820 in 2030-31, according to the PBO estimate.

Despite this finding, one element of this tax-and-rebate system that remains intact in the PBO analysis is that wealthier households get hit harder than poorer ones. Looking at Ontario, households in the lowest 20-per-cent income bracket would still come out with more money — up $1,036 in 2030-31 — while the richest 20 per cent would be down $6,456, according to the PBO.

In the House of Commons, the report fed the fire of Conservative opposition to the federal government’s marquee climate policy, coming ahead of the scheduled increase in the levy on Saturday. Conservative MPs railed against the carbon price, arguing the government’s parliamentary alliance with the New Democrats is unfairly driving up costs.

“In a bid to look more virtuous to eco-radical groups, the costly coalition is going to jack up their failed carbon tax this Saturday,” said Conservative MP Jasraj Singh Hallan.

“Why do they not axe the failed carbon tax and stop punishing families for eating, heating and driving?”

The Liberals responded by stressing that households still receive rebates to cover direct costs of the fuel levy. They also pointed to the overall costs of climate change, which causes more intense and frequent extreme weather, like floods, storms and forest fires. Last year, the PBO estimated that rising temperatures and precipitation since the early 1980s has already lowered Canada’s gross domestic product by $20 billion.

“Our government won’t back down on putting a price on pollution, because we won’t back down on effective and progressive policy that at once helps people with the cost of living while fighting climate change,” Environment Minister Steven Guilbeault said in a statement Thursday.

Since taking power in 2015, the Liberals have also argued that policies like setting a national minimum carbon price will actually reap economic benefits, as countries around the world shift toward economic activity without greenhouse gas emissions that cause climate change.

This week’s federal budget included a suite of new tax credits — expected to cost around $80 billion over the next 11 years — that are meant to spur businesses to spend money to create and expand zero-emission electricity generation, manufacture clean technology like wind turbines and solar panels, and extract and process the minerals needed to make materials like electric car batteries.

For some Liberals, such policies put the federal Conservatives in an awkward position, since they represent a government-directed “industrial policy” that might be anathema to disciples of free market ideology.

What climate policy under a Conservative government would look like is a work in progress; the party is on its third leader in five years and has yet to settle on an approach that voters have responded to during a federal election campaign.

Pierre Poilievre, however, was clear when he ran for the party leadership that he would scrap the consumer carbon levy, and argued that “technology, not taxes” is the solution to climate change.

But, he has hedged on whether tax credits would count as a policy he’d endorse, and wouldn’t answer this week when asked repeatedly whether he favours the budget’s approach.

“We’re going to study what’s in the budget and we’ll come up with our own election platform,” Poilievre said.

Another potential challenge for the Conservatives is an emerging plan to create a form of insurance around the federal carbon price. The idea, which the budget said is still in its nascency, is to write contracts with companies that spend money reducing their emissions under the industrial pricing system — which is distinct from the federal fuel levy — so that they get some form of compensation if a future government dismantles the federal carbon pricing system.

One senior government source, who spoke to the Star on condition they aren’t named, said the point isn’t to head off the Conservatives as they promise to scrap the carbon levy, but to give businesses confidence the industrial pricing system is here to stay, so they feel safer putting money toward slashing emissions.

Yet even so, “if you’re running on abolishing it, it does make your life more complex,” the source said.

Caroline Brouillette, acting executive director of Climate Action Network Canada, said that’s because the contracts could essentially “future-proof” the industrial carbon price — as well as the scheduled increase in the price to $170 per tonne by 2030 — by creating a financial incentive against weakening or dismantling the federal pricing system.