Ciaran Williams

Science and Environment Editor

Photo via Todd Korol/Reuters

As cries of “axe the tax” echo across the House of Commons, the presence of Canada’s infamous carbon tax grows in our public consciousness. Since its implementation in 2019, the tax has become an ever more divisive issue among Canadians, becoming ever more involved in our political discourse. Hoping to turn it into a wedge issue, Conservative Party leader Pierre Poilievre has come out in strong opposition to it, espousing the isea that it imposes a financial burden on working-class Canadians, and even characterising the snap election he attempted to trigger as a “carbon tax election” to put the issue front and center for Canadian voters.

On the other end of the aisle, the Liberal government argues that it is the best way to help Canada reach climate targets. By putting a price on emissions, they believe polluters will be encouraged to transition to sustainable alternatives. This will then lower carbon emissions nationally, and guide us to our goal for net 0 carbon emissions by 2050.

Numerous opinion pieces and constant fiery rhetoric surrounding the tax often confuse information, preventing Canadians from understanding what the tax really is and how it affects them, what exactly the tax is, and what the actual cost for individual Canadians is. For this reason, it’s important to explain how the carbon tax works so you can inform your own opinion.

First implemented in 2019, the goal of the carbon tax was to put a price on pollution by introducing a cost to the emission of CO2. It can be broken down into two taxes: the consumer carbon tax, and the industrial carbon tax. The Canadian government started at a levy of 20$/tonne of CO2 burned for the consumer carbon tax in 2019, and increased the cost annually until it reached a cost of 80$/tonne in April of this year. The tax is slated to increase by another 15$/year increment until 2030, where it will cap out at 180$/tonne. This ‘consumer carbon tax’ is the one you hear most about in the media, because it is what is directly affecting Canadians’ wallets, and thus draws the most attention from the media.

The industrial carbon tax, which you hear less about, is a method limiting industrial carbon pollution mostly through a system of regulation called “output based pricing system,” or OBPS for short. Companies subject to this system and not the standard carbon levy are forced to pay a levy for any emissions they emit past a certain limit. This industrial carbon tax is expected to account for 48% of emissions reduction by 2030, according to Executive Vice President of the Canadian Climate Institute, Dale Beugin. This is large compared to the 8-9% reduction in emissions caused by the consumer carbon tax. 

All proceeds collected from the carbon tax are slated to return to the communities from which they came. According to the Canadian Government, 90% of funds collected are redistributed in the form of the Canadian Carb Rebate, a cheque or direct deposit granted by the government proactively. The other 10% is returned to businesses, farmers and Indigenous groups from the localities they were collected from. This is the main source of confusion surrounding the carbon tax, as most Canadians do not realise they actually make back what they lose to the tax in the form of this rebate. Also, many of Canada’s working class families that rely on emissions to turn a profit, like farmers, receive a large exemption, with 95% of farm-related emissions not being taxed.

With all of that laid out, what does the impact of the carbon tax actually look like on the Canadian economy and your wallet? Well, as a resident of Quebec, you can expect to see none of this affect you in the short-term. Since 2013, Quebec has had its own carbon pricing scheme in place. Our cap-and-trade model, which grants emission allowances that companies can trade with one another (hence the name), meets the federal standards for carbon pricing. This means that provinces that have independent systems, like us, along with BC and the Northwest Territories, are completely exempt from the tax so long as our provincial systems meet a federally implemented standard for emissions reductions.

So, then, how does the Tax affect Canadians in the provinces subject to it? According to a Parliamentary Budget Office (PBO) report published earlier this year that has been the subject of much attention, around 80% of Canadian households come out even or ahead after the rebate. This means that lower income families who don’t consume as many fossil fuels can expect to even make money on it. The 20% that see a loss to the tax are typically upper class Canadian who have larger houses, more vehicles and travel more often, thus polluting more. This means that by and large, the tax has no effect, or may even have a positive impact on most Canadians’ bank accounts.

According to a Parliamentary Budget Office (PBO) report published earlier this year that has been the subject of much attention, around 80% of Canadian households come out even or ahead after the rebate.

This, however, does not account for the larger economic impact of the carbon tax. When governments pass large pieces of tax legislation, it is normal for them to have an impact on the larger economic standing of the country in the long-run, and the carbon tax is no different. According to the same PBO report that was cited earlier, and elaborated upon in an edition of CBC’s Power and Politics, parliamentary budget officer Yves Giroux estimated that the carbon tax would have a net negative impact on Canada’s GDP by 2030. This is concerning, because Canada has seen some of the smallest real GDP growth amongst developed nations in recent years, especially when compared to the United States. According to statistics pulled from the Fraser Institute, the carbon tax could account for  a 1.8% drop in GDP and the loss of about 185,000 jobs nationwide. Most of these jobs would be lost in sectors that are most affected by the carbon tax, such as transportation and fossil fuel extraction. It is also important to note that the Fraser Institute is a think tank with a fiscally conservative lean, meaning their projections are not to be taken as being as objective as those of the PBO, which predicts only a 0.92% drop in GDP by 2030. This means that the impact of the carbon tax long term might not bode well for an already comparatively weak Canadian economy.

Another argument against the carbon tax perpetuated by the Conservative Party is that it leads to increased inflation. The idea there is that the carbon tax will become a strain on the supply chain, and thus prices will increase to compensate. The Conservative party suggests that as the Government imposes the tax on farmers, transportation, and other sectors, their profits will decrease due to the levy and force them to raise the prices of their goods and services to compensate. This, however, is not corroborated by data. According to the Bank of Canada governor, Tiff Macklem, the carbon tax is only responsible for a meager 0.15% of Canada’s inflation spike. This amount is insignificant when considered next to the inflation we have seen since the Pandemic due to supply chain shortages and corporate price gouging – however, it is still noteworthy.

The cost of the carbon tax on the Canadian economy may seem negative, but it must be considered against the alternative cost of climate change. As the environment continues to deteriorate, natural disasters such as wildfires like the one seen in Jasper, Alberta and floodings continue to increase in both regularity and intensity. These events carry their own costs, not only in repairs, but also in lives. Unfortunately, however, it is difficult to estimate the exact cost of damage caused by climate change because, as PBO officer Yves Giroux points out, it is difficult to estimate exactly what natural disasters are the result of climate change, or how their intensity is impacted by it. This means it is impossible to put an exact number to the cost, but as the climate continues to worsen, we can be certain this figure will only grow. 

With this in mind, it is time to rethink whether the federal carbon tax is really so destructive. In a world edging climate catastrophe, methods of regulating emissions are becoming more and more necessary if we’re going to meet our net zero climate goals in time, regardless of their impacts on the Canadian economy which are seemingly more minimal than purported. What would be even worse than the carbon tax would be no method of regulation, which is simply not an alternative given the consequences. Given these facts, perhaps it is time to see through the rhetoric, and ask yourself if the carbon tax really is something that we should be opposed to.