Reviewing the Fiscal and Distributional Analysis of the Federal Carbon Pricing System

4 February 2020

Posted by: Nasreddine Ammar

Posted in: Costing

The federal carbon pollution pricing “backstop” system is based on the Greenhouse Gas Pollution Pricing Act, adopted on June 21, 2018. It has two components: a charge on fossil fuels, and a regulatory system for large industry, known as the “output-based pricing system” (OBPS).

The backstop will apply in provinces and territories that do not have adequate climate pricing plans of their own that meet federal standards. They are Saskatchewan, Manitoba, Ontario and New Brunswick, starting in April 2019, and Yukon and Nunavut, as of July 2019. The federal output-based pricing system will be implemented in Prince Edward Island.

As a result of Alberta's May 30, 2019 repeal of its carbon levy, Alberta is covered by the federal fuel charge starting since January 2020. The federal government announced that the proposed provincial fuel charge in New Brunswick will replace the federal fuel charge starting from April 2020.

In this report, PBO updates the estimates by using the most recent data released by Statistics Canada (input-output tables, provincial physical flow accounts for GHG emissions), Canada Energy Regulator (future energy uses), and Environment Canada (projected sectoral GHG emissions). In comparison with the previous report, PBO also considers the carbon revenues and costs embedded in the sales taxes (GST, PST or HST).

Supplementary Data

Household income quintiles (xlsx)

25 April 2019

Fiscal and Distributional Analysis of the Federal Carbon Pricing System (Revised May 23, 2019)

This report provides a fiscal and distributional analysis of implementing a federal carbon pricing system in Ontario, New Brunswick, Manitoba and Saskatchewan. PBO estimates that the federal government will generate $2.63 billion in carbon pricing revenues in 2019-20. The vast majority of revenues ($2.43 billion) will be generated through the fuel charge; the balance, roughly $197 million, will be generated by output-based pricing. Households will largely bear the cost of the pricing system through their consumption of energy used for residential and transport purposes, and carbon charges embodied in non-energy products. Regions currently using carbon-intensive energy can expect higher costs. The federal government has stated that all proceeds from the fuel charges will be returned directly to households and particularly affected sectors in Ontario, New Brunswick, Manitoba, and Saskatchewan. Except for the richest 20%, most households will be better off on a net basis because the amount of the rebate will exceed their average carbon cost.