Public Policy: Emissions Pricing and Affordability: Lessons from British Columbia
Public Policy: Emissions Pricing and Affordability: Lessons from British Columbia
School of Public Policy
University of Calgary
EMISSIONS PRICING AND AFFORDABILITY: LESSONS FROM BRITISH COLUMBIA
How does emissions pricing affect affordability in Canada? BC, with the longest-running carbon tax, offers some lessons.
Some blame emissions pricing for increasing costs and decreasing energy affordability. Concerns about affordability in Atlantic Canada even prompted the Government of Canada to exempt heating oil from the federal fuel charge until March 31, 2027.
Emissions pricing affects households’ costs in two ways. First, it directly increases the price of fuels based on the amount of CO2 emitted as they are burned. The 2023 price is $65 per tonne, which translates into 14.3 cents per litre of gasoline and $3.32 per GJ of natural gas. Second, increases in the price of fossil fuels — gasoline, diesel, natural gas, heating oil etc. — trickle through the supply chain, indirectly raising the price of goods and services across the economy and so increasing households’ costs.
The effect of emissions pricing on the prices of goods and services can be measured using the effective tax rate: the ratio of carbon taxes paid to total expenditure on a specific product. It includes both direct and indirect costs, meaning it shows the full burden of the tax relative to its absence.
For most goods and services, BC’s carbon tax of $65 per tonne adds less than 0.3% to the cost.
The figure uses the latest estimates from Statistics Canada to calculate BC’s effective carbon tax rates for a range of goods and services. From a high of 0.9% for relatively energy-intensive air transportation to lower than 0.12% for insurance and financial services, the figure shows how necessities like food or clothing and footwear are increased by the province’s carbon tax by 0.33% and 0.2%, respectively.
While some politicians and policymakers are blaming emissions pricing for high costs of living, the figure shows that the actual effect is quite modest for most items.
Editorial Practices Statement: This manuscript is a rapid contribution to the policy conversation that has been open-reviewed by at least one University of Calgary faculty member prior to publication.
DECEMBER 2023
Emissions pricing is just one of many indirect taxes that households face. Other examples are sales taxes and alcohol levies. We estimate that the combined effect on Canadian consumer prices from all indirect tax increases between January 2015 and October 2023 was 0.6%.
Knowing that much of the present affordability crisis is due to factors other than emissions pricing, the elimination of the carbon tax is unlikely to solve the problem. As Canada slowly recovers from high inflation in 2021 and 2022, policy makers will need to consider alternative solutions.
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