The Parliamentary Budget Officer (PBO) is revising downwards his estimate of the net cost of the federal carbon pricing system for Canadian households.
Criticized this spring for a methodological error that it acknowledged, the PBO released Thursday an update of its latest estimate of the impact of Ottawa’s so-called “carbon tax” on Canadians’ wallets.
As in its previous versions, the new study concludes that almost all of those to whom it applies — that is to say all Canadians, with the exception of the inhabitants of Quebec and Colombia — British, who have their own carbon pricing system — end up with more money in their pockets. This is because we must not only take into account all of our direct and indirect tax costs, including consumption tax. We must also remember that Ottawa returns all of the revenue from this pricing mechanism to them, in addition to most of the fuel royalties that are paid by the companies.
Aiming to send consumers a price signal that would encourage them to reduce their use of fossil fuels, this pricing was increased this year to $80 per tonne of greenhouse gas (GHG) and must reach $170 by 2030 From a strictly fiscal point of view, Canadian households should have, on average, between $200 and $1,200 more in their pockets at the end of that year, estimates the PBO.
However, the results are different if we add to the calculation the effect of carbon pricing on employment and business investment, continues the DPB, Yves Giroux. In this case, it is only the 40% of households with the lowest incomes who can hope to earn between $87 and $1275 at the end of the year, all the others having to expect a net cost which could range from $600 to almost $5,000 depending on their income and the province where they live.
It is mainly on this side that the correction of the methodological error is most felt. Until then, almost all Canadians were expected to lose money — and on average at least twice as much. The PBO had notably estimated that federal policy would reduce real gross domestic product by 1.3% in 2030. This cost was reduced this week to 0.9%.
For the federal government, the net cost of its measure should increase from 1.5 billion this year to 4 billion in 2030-2031.
Other economic impacts
The Liberal government welcomed this correction on Thursday, while emphasizing the net gain made by Canadians from a strictly fiscal point of view. Strongly hostile to the measure, the conservative opposition instead saw it as confirmation of its negative impact when all fiscal and economic factors are taken into account.
In his report, Yves Giroux is careful not to take sides. He reports that, according to Environment Canada, the federal mechanism should reduce GHG emissions by 15 million tonnes (Mt) in 2030 and by 62 Mt if we add the effect of trading systems for large industrial emitters. He notes that other experts have come to estimates of reductions up to 50% higher.
He readily admits that his assessment of the economic consequences of carbon pricing does not take into account the positive economic impacts that reducing GHG emissions in Canada could have. He only observes that their relative weight in global emissions is too modest for this performance to clearly influence the effects of climate change.
However, he notes, at the same time, that Canada’s active participation in the global collective effort undoubtedly remains essential and that this is why we cannot see ourselves remaining “doing nothing”.