A Distributional Analysis of Federal Carbon Pricing under A Healthy Environment and A Healthy Economy

Abstract

This report provides a distributional analysis of federal carbon pricing under the Government’s A Healthy Environment and A Healthy Economy plan.

Highlights

  • 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.

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