The Parliamentary Budget Officer (PBO) today released an updated distributional analysis of the federal fuel charge.
The updated analysis includes recent policy changes and greenhouse gas (GHG) emissions projections. To address the computable general equilibrium (CGE) modelling oversight in previous reports, the updated analysis provides estimates of household net costs that incorporate the economic impact of the fuel charge only.
“The main finding from our updated analysis is, as we expected, consistent with our previous reports. When only the fiscal impact of the fuel charge is considered, the average household across most income quintiles will see a net gain. However, when both the fiscal and economic impacts of the fuel charge are considered, the average household across most income quintiles will face a net cost,” said PBO Yves Giroux.
Given the provincial focus of the report, the updated analysis uses CGE estimates of the economic impact of the fuel charge provided by Environment and Climate Change Canada (ECCC). In addition, the PBO solicited and received feedback from outside experts at the U.S. Congressional Budget Office and the CPB Netherlands Bureau for Economic Policy Analysis regarding our methodology and assumptions.
The “fiscal impact only” estimates of household net cost include the federal fuel charge paid directly and indirectly, as well as the related Goods and Services Tax (GST) paid, less the Canada Carbon Rebate received. These estimates, however, do not incorporate the loss in employment and investment income from the fuel charge as a distinct cost to the household.
“Considering only the fiscal impact of the federal fuel charge, in 2030-31, we estimate that the average household in each of the backstop provinces will see a net gain, receiving more from the Canada Carbon Rebate than the total amount they pay in the federal fuel charge and related GST,” adds Mr. Giroux.
To provide a broader measure of the net cost to households in backstop provinces, the analysis also incorporates estimates of the loss in employment and investment income from the fuel charge—the “economic impact”—as an additional cost. Estimates of the economic impact from ECCC capture the loss in employment and investment income that would result from the fuel charge in a general equilibrium, or macroeconomic, setting.
“In 2030-31, taking into consideration both fiscal and economic impacts, we estimate that the average household in the top three income quintiles will face a net cost when both fiscal and economic impacts of the federal fuel charge are considered,” said Mr. Giroux.
ECCC also provided the PBO with estimates of the reduction in GHG emissions attributable to the fuel charge, corresponding to its estimated economic impacts. ECCC estimates that the fuel charge in backstop provinces will account for almost 13 million tonnes (Mt) of emissions reductions in 2030 compared with what would have been emitted without the fuel charge.
In keeping with the PBO’s mandate and previous reports on this subject, the scope of the updated analysis continues to be limited to estimating the distributional impact of the federal fuel charge and does not attempt to account for the economic and environmental costs of climate change.