A Distributional Analysis of Federal Carbon Pricing under A Healthy Environment and A Healthy Economy
This report provides a distributional analysis of federal carbon pricing under the Government’s A Healthy Environment and A Healthy Economy plan.
Under the Government’s A Healthy Environment and A Healthy Economy (HEHE) climate 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.
When losses in economic efficiency are added to fiscal impacts of federal carbon pricing, the net carbon cost increases for all households in Ontario, Manitoba, Saskatchewan and Alberta.
Most households in provinces under the backstop will see a net loss resulting from federal carbon pricing under the HEHE plan. That is, household carbon costs will exceed the Climate Action Incentive payments households receive.
Relative to disposable income, our estimates of household net carbon costs continue to show a progressive impact that is, larger net costs for higher income households.
We estimate that carbon pricing under HEHE will reduce the budgetary balance (increase the budgetary deficit) by $0.9 billion in 2021-22 and ultimately by $5.2 billion in 2030-31.
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.
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.
Parliamentary Budget Officer