Efficient lighting can help reduce energy costs and the effect of the carbon levy. Photo: David Dodge, Pembina Institute
The Alberta budget has been released and it includes a price on carbon. The advice from economists on all sides is consistent — a comprehensive climate policy includes a mechanism that puts a price on carbon.
Alberta’s new carbon levy is not well understood yet and misinformation is spreading quickly. In this blog we explain how the majority of Albertans will pay nothing additional on gasoline or heating costs. Most people could even come out ahead financially and yet they still have a clear incentive to reduce their GHG emissions.
The carbon levy won’t cost most of us more
People are claiming the introduction of the carbon levy will cost households an extra $500 or even $1000 a year — a scary prospect. This makes for good headlines but its clear to anyone who actually reads the budget that it’s nothing more than hot air.
Economists agree, putting a price on carbon and letting the market find ways to reduce emissions is highly effective. The money to be collected won’t just disappear. The budget shows a portion of the revenues will be used to offset the impact on low to middle-income households by providing them with consumer rebates that cover the full cost of the carbon levy. 60 per cent of Albertan’s will pay nothing additional and another six per cent will have part of the costs covered.
The majority of Albertans will pay nothing additional or even come out ahead
The rebate covers the “average” cost of the carbon levy to an individual, a couple and a family with children. If consumers reduce their emissions — turn down the heat when no one is home, choose more fuel efficient cars, use public transit, walk, bike, take advantage of coming energy efficiency programs — they can reduce their “actual” cost below the “average.” Add to that the direct savings from using less energy and you get extra cash in your pocket.
Low-income consumers typically use less energy than the rest of the population, meaning the average rebate will more than cover the carbon costs they pay. For example, based on average household electricity use, a family making $60,000 or less per year would not only owe nothing, but actually see an extra $120 in their pockets in 2017.
A family of middle-income consumers who reduce their overall use by 10% would come out $80 ahead.
Consumers do respond and reduce
Many commentators are claiming emissions are fixed because people cannot change their behaviour and therefore a carbon price will have little effect. The reality is there are examples from other jurisdictions that show people do respond to a carbon price by making changes to lower costs now and to avoid repeatedly paying a price on carbon over the longer term. Limiting the rebate to the additional cost faced by low and middle-income consumers ensures additional money needed to make investments in reducing emissions is available. These revenues can be used to support energy efficiency, renewable energy, and clean technology. In Alberta’s case it is also being used as support for small businesses.
The carbon levy and rebate system will protect Albertans from extra costs for gasoline and heating — and actually leave them coming out ahead. It also incentivizes the emissions reductions we need to see in the province.
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.
