Albertan's have a lot of questions about how the incoming carbon levy will affect them. Here we provide answers to the most commonly heard queries. Photo: Pembina Institute
Why a price on carbon?
Does a price on carbon reduce emissions?
Yes. Experience from jurisdictions that have implemented carbon prices show the policy does reduce emissions. B.C. saw per capita fuel use covered by its tax drop 16 per cent by 2014 relative to 2008. It works by sending market signals that guide both consumption choices and long-term investment decisions towards lower-carbon alternatives. In addition the revenue collected can be used to support deployment of energy efficiency and renewable energy to further reduce emissions.
How many jurisdictions have a price on carbon?
Currently about 40 countries and over 20 subnational regions (states, cities, regions) are putting a price on carbon with prices up to $130/tonne.
What do businesses think about a price on carbon?
Companies are largely supportive of a price on carbon because the clarity provided by a clear market signal for business planning is critical. Companies have been using shadow carbon pricing in business planning for years. Organizations such as the Mining Association of Canada have come out in support of carbon pricing.
Why put a price on carbon if you just give it back?
Putting a price on carbon allows individuals and the market to make choices on how to reduce emissions. By giving fixed rebates, people can end up with money in their pocket if they choose to reduce their emissions, so you are providing an incentive to reduce emissions while protecting them from costs.
What do economists think?
There is broad consensus from economists that putting a price on carbon and letting the market find ways to reduce emissions is highly effective.
What is it?
Isn’t the carbon levy just a money grab (new tax) under another name?
No, not in the goal of the levy or the use of the revenue. Most taxes exist to raise money for government spending. The primary purpose of a carbon levy is to reduce harmful emissions by putting a price on the externality and using a market mechanism to achieve emission reductions in place of direct government regulations. In regions that have a carbon levy there are different examples for how the revenues can be used.
The revenues, as written in Bill 20, are prohibited from going into general revenues, there is a restriction that revenues can only be used for:
- initiatives related to reducing greenhouse gas emissions;
- supporting Alberta’s ability to adapt to climate change; and
- providing rebates or adjustments related to the carbon levy to consumers, businesses and communities.
All money collected will be reinvested in the economy to further reduce emissions, diversify the energy economy, and provide support for the transition. The split between these categories is a budgeting decision to be made by government, providing the flexibility to change the allocations as the economic situation changes.
What will be done with the money?
As laid out in the budget, the $9.6 billion over the next 5 years will be spent on two priorities:
- $6.2 billion will go to support growth and create jobs, — without which Alberta risks being left behind — build the green infrastructure that will avoid emission lock in for decades and provide direct support to implement energy efficiency in homes and businesses which generate over $2 billion in savings.
- $3.4 billion will go to consumer rebates and support for small businesses, as well as coal and indigenous communities to support all Albertans in the energy transition the world is undergoing.
What are the impacts?
What will it cost people?
Low income Albertans will have more than the full cost of the carbon levy, including indirect costs, rebated, while middle class households will pay only $10-$35 for the whole year. Those who reduce their emissions by taking action will end up ahead.
Won’t it cost people more than the government says?
No, the claims of it costing families $1000 are false, based on ignoring the impact of rebates and incorrect applications of studies and data that do not apply to Alberta. The indirect costs are more than covered by rebates for low income Albertans and very modest for the majority of households.
Doesn’t a carbon price hurt the economy?
No, a carbon price is widely accepted as the most efficient way to reduce emissions. This is supported by the experience in B.C. where the economy has grown since the carbon price was implemented and mirrored in the experiences of other examples such as U.S. states and Ireland. In contrast, the costs of inaction are high, with impacts to GDP estimated in the double digits. The cost of an increase in extreme weather events is significant considering that one such event, the Alberta floods of 2013, had damages of more than $6 billion.
What about airline fuel charges?
The carbon levy will only be applied to flights within the province. As the airline industry stated, the levy will amount to roughly $1 per ticket on a flight from Calgary to Edmonton. In comparison the “airport improvement fee” applied to all tickets from Calgary is $30.
What about charities, not-for-profits and school boards?
These groups recognize the need to take action on climate, as the people they serve are the next generation and lower income Albertans who will be most acutely impacted by climate change.
Charities, not-for-profits and school boards are solutions oriented. The commitment to fund EE programs (such as driver’s training which can reduce fuel cost on average by 9 per cent simple building recommissioning which reduce energy use by 16 per cent for existing buildings as well as energy retrofits) with levy revenue can provide more than enough savings to cover the cost of the levy and leave groups better protected against the volatile nature of energy costs.
This type of approach protects these groups but will also ensure the necessary steps to reduce emissions, which protect all Albertans, are taken.
How will the carbon levy impact municipalities?
Cities and municipalities are the leaders in addressing climate change. Across Alberta they are already showing climate leadership by reducing emissions through energy efficient infrastructure and operations. This early action should be commended and will be recognized under the carbon levy, as steps taken to reduce emissions will result in savings.
Money raised from the levy can be used to fund energy efficiency programs that help municipalities make changes both in the short term (driver training and building recommissioning) and in the longer term in lower carbon infrastructure that more than cover the cost of the levy and leave them spending less on energy overall and better protected against the volatile nature of energy costs.
The costs to cities while they implement these changes should be understood in the context of the overall budget. For example for the City of Calgary, the $2.7 million estimated increase in cost represents an increase of 0.5% in the transportation department’s operating budget.
Sara Hastings-Simons, elected to a three-year term on the Pembina Institute's board of directors in June 2020, was a senior fellow with the Alberta clean economy program with the Pembina Institute.
