There was talk in August of the introduction of a new federal tax on the price of gasoline at the pump in force since 1er July. It would like to be “disincentivizing” (or incentivizing, it depends), we hope, in Ottawa. It will be 17 cents per liter more in 2030.
Since 1er July 2023, producers and importers must reduce the carbon intensity of the gasoline and diesel they produce and sell in Canada over the entire life cycle of the covered fuel, i.e. emissions from extraction, refining, distribution and end use.
Subsequently, the Clean Fuels Regulations emphasize that the carbon intensity limit will be lowered each year. According to estimates from Environment and Climate Change Canada (ECCC), the final decline, of around 15% (below 2016 levels), will be reached by 2030.
That’s the gist of the mechanics. ECCC recognizes that the Clean Fuels Regulations are one of the most complex regulations ever developed. Essentially, it establishes a credit market where producers and importers of gasoline and diesel must create or purchase credits in order to meet set carbon intensity limits. It is believed that this will send a signal to industry to invest in low-carbon fuels and technologies.
The calculation predicts that increasing production costs will push up the prices of gasoline and diesel for households and industrial users. In turn, “thanks to the creation of credits, fuels and energy sources with low carbon emissions will be less expensive,” we can read in the analysis of the Parliamentary Budget Officer (DPB).
It is also based on the belief that the increase in production costs in sectors using this gasoline and diesel will lead to changes in the way things are done. “The change in relative fuel prices will lead to a decline in demand for fossil fuels and an increase in demand for low-carbon fuels and energy sources. » We can imagine that such a substitution will also be observed among individuals.
In its report, the PBO uses ECCC’s modeling that the regulation would result in increases in the price of gasoline and diesel in 2030 of 17 cents and 16 cents per liter, respectively.
As for the impact, the regulation should result in a drop in real GDP in Canada of up to 0.3% in 2030. This expected drain goes from -1% in Newfoundland to -0.1% in British Columbia. . It should be -0.3% in Quebec and Ontario.
Still in 2030, the cost for households ranges from 0.62% of disposable income (or $231) for those with low income to 0.35% (or $1008) for those with high income, underlines the DPB. The cost for the average household is lowest in British Columbia (0.28% of disposable income, or $384). It is “only modestly high” in Ontario (0.35%, or $495) and Quebec (0.39%, or $436).
This new tax is added to a price at the pump already amply saturated with government levies, which can account for more than a quarter of the price of a liter of ordinary gasoline.
In Quebec, with its cap-and-trade system for emissions rights (SPEDE) involving a carbon exchange, the government already imposes a climate ticket in the form of rights included in the price at the loading ramp. The impact of the carbon market which, at the last final sale price of the metric ton of CO2 obtained at the emissions rights auction, could be equivalent to adding 8.8 cents to the pump price of a liter of regular gasoline (11.2 cents for a liter of diesel).
As for the incentive dimension of such tax grabs, the Chair in Taxation and Public Finance believes in it. In June, it produced a report on fuel taxation in Quebec. She recalls that part of the tax levies applied is devoted to the maintenance and development of the road network. For taxes targeting the fight against climate change, we can see them as a “disincentive” to the consumption of this product that generates greenhouse gases. “It is good to keep in mind that in Quebec, road transport has been the main source of increasing GHG emissions since 1990.”
She emphasizes from the outset that it is in Quebec that we find the highest level of specific taxes among the provinces. Also, discounts must be offered to remote and border regions in order to mitigate the impact of lower prices in other provinces or to adapt to the fact that a large part of the population does not have solutions substitute to ensure their mobility.
But all this considered, taking into account the fact that Quebec must find additional sources of revenue in order to ensure the financing of public transport infrastructures, the Chair maintains that “the method of financing which will be favored should exert additional pressure for choices eco-responsible mobility solutions,” she writes. She then suggested that an increase in the fuel tax rate should not be ruled out straight away.