Canada

Carbon taxation

June 6, 2021  |  Impact Net Zero

Photo by Marcin Jozwiak on Unsplash

Photo by Marcin Jozwiak on Unsplash

You may have heard about the carbon tax lately. What do taxes do anyway?  Governments impose taxes on goods and services to raise revenue, and to discourage certain consumer purchase (think of a tobacco tax) or industrial practices.  A carbon tax’s main purpose is to make certain emissions-heavy goods and services more expensive to discourage their use. Economists agree such a tax is the most efficient way to influence large-scale behaviour.  So how does Canada fit into this?

Back in 2018, the Canadian federal government put in place a requirement for carbon emitters to pay $20 per tonne of emissions starting in 2019, increasing to $50 per tonne by 2022. Then in December 2020 the government decided to kick things up, announcing the tax eventually increases all the way to $170 per tonne by 2030 – this translates into a 39.6 cent per litre increase in gasoline price relative to without the tax. Importantly, 90% of carbon tax money the federal government collects is returned to consumers through tax rebates, with the remainder staying with the government. This means that, depending on the taxpayer’s income bracket and consumption patterns, some or all of the carbon tax payment gets rebated at tax time!

But wait, what if some provinces in Canada don’t want to pay a federally-mandated carbon tax? Indeed, Alberta, Saskatchewan and Ontario challenged the carbon tax’s constitutionality.  In March 2021 the Supreme Court of Canada ruled the federal carbon tax was constitutional. The federal tax is a backstop for a provincially-mandated carbon tax. This means that if the province sets a tax that meets the federal standard, then the province designs, implements and collects the tax without federal intervention. Otherwise, the federal backstop applies.

It turns out some provinces have been taxing carbon emissions for years. Alberta and Quebec have each had some form of carbon taxation since 2007. Meanwhile British Columbia has had a carbon tax since 2008, and is cited internationally as an example of successful implementation.

So what does this all mean?  Canada has committed to reaching net zero emissions by 2050 to help mitigate climate change, and a national carbon tax is important because it encourages consumer and industrial behaviours that contribute towards that goal. Canada has had trouble reaching previous climate targets. But now is a good time to get back on the horse, and the carbon tax is like a saddle: you don’t need to use one, but it makes the ride much smoother!

 

Giddy up!

Impact Net Zero

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