The carbon tax hardly impacts Canada's affordability: study

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With some politicians and policymakers pointing fingers at emissions pricing for high costs of living, new research by the University of Calgary’s (UofC) School of Public Policy shows that blaming the tax isn’t necessarily a valid argument.

The study, conducted by Trevor Tombe and Jennifer Winter, uses BC’s carbon tax and recent data from Statistics Canada to figure out how much of an increase it adds to a variety of things including, among others, food, education, gross rent paid, and clothing and footwear.

The two highest added increases, according to the numbers, were air transportation at 0.92% and motor vehicle goods and services at 0.5%.

Everything else came to 0.33% or less, with the lowest being property, health, and transport insurance at 0.08%.

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“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,” reads the report.

“It includes both direct and indirect costs, meaning it shows the full burden of the tax relative to its absence.”

Emissions pricing affects households’ costs in two ways, according to the study. First, it directly increases the price of fuels based on the amount of carbon dioxide emitted as they are burned.

In 2023, the price is $65 per tonne, or 14.3 cents per litre of gasoline and $3.32 per gigajoule of natural gas.

Secondly, the increases in the price of fossil fuels like gasoline, diesel, and natural gas, come through the supply chain and indirectly raise the price of goods and services across the economy therefore increasing households’ costs.

But emissions pricing is just one of the indirect taxes that households face. Other examples include 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%,” the report reads.

“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.”

Tombe and Winter suggest that policymakers will need to consider alternative solutions than cutting the tax as Canada recovers from high inflation in 2021 and 2022.

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