PBO releases its distributional analysis of A Healthy Environment and A Healthy Economy

The Parliamentary Budget Officer (PBO) today released his distributional analysis of federal carbon pricing under the Government’s A Healthy Environment and A Healthy Economy (HEHE) climate plan.

Under the HEHE plan, the federal carbon levy is set to rise by $15 per year from $50 per tonne in 2022 until it reaches $170 per tonne in 2030. The report provides an update to previous PBO distributional analysis and incorporates the loss in economic efficiency from federal carbon pricing on household incomes.

“Incorporating economic impacts into our distributional analysis helps to provide a more complete picture of the overall impact of the federal carbon pricing system on households under the federal backstop,” says PBO Yves Giroux.

The report finds that when the economic impact is combined with the fiscal impact, that is the carbon levy and related GST paid less the rebate received, the net carbon cost increases for all households, reflecting the overall negative economic impact of the federal carbon levy under the Government’s HEHE plan.

“Under the Government’s HEHE plan, most households in Alberta, Saskatchewan, Manitoba and Ontario will see a net loss resulting from federal carbon pricing. That is, the costs they face—including the federal carbon levy, higher GST and lower incomes—will exceed the Climate Action Incentive rebate they receive,” adds Mr. Giroux.

Estimates of household net carbon costs continue to show a progressive impact, that is, larger net costs for higher income households. The report finds that the largest net cost is for households in the top income quintile in Alberta (2.8% of disposable income) and the largest net gain is for households in the lowest income quintile in Saskatchewan (2.3% of disposable income) in 2030-31.

The report also provides estimates of the impact of carbon pricing on federal budgetary revenues and program spending. “Under its HEHE climate plan, we estimate that carbon pricing will increase the budgetary deficit, other things being equal, by $0.9 billion in 2021-22 and ultimately by $5.2 billion in 2030-31,” says Mr. Giroux.

The scope of the PBO’s analysis is limited to estimating the distributional impact of federal carbon pricing and does not attempt to account for the economic and environmental costs of climate change.