Apr 19, 2016

A carbon tax comes to Alberta


Alberta’s 2016 Budget presents its plan to price carbon, in two parts: a new Carbon Levy applied to transportation and heating fuel, at $20 per tonne of CO2 (4.5 cents per litre at the pump) starting January 2017, rising to $30 (6.7 cents per litre) in 2018; and, changes to the  Specified Gas Emitters Regulation (SGER) framework for Large Final Emitters. Combined, the government says these measures will cover 78-90% of Alberta’s GHG emissions.

Let’s take a look at the details. There is not much at all on the SGER piece, except that it prices emissions at $20 per tonne in 2016 and $30 in 2017 (each a year earlier than the carbon levy) for emissions that exceed an as-yet-unspecified performance standard. The budget doesn’t plan on receiving substantial revenues until 2018/19, when revenues grow to $917 million. Much will depend on what the performance targets end up being, subject to negotiation with industry.

The carbon pricing regime is phased in over three fiscal (April-March) years, but implemented on a calendar year basis, so I’m mostly looking at 2018/19, when the carbon pricing plan is fully phased in. In that year the Carbon Levy is expected to raise $1.7 billion, which added to the SGER carbon pricing yields $2.6 billion in carbon pricing revenue. That’s about double what BC’s carbon tax pulls in: same rate of $30 per tonne, but BC’s lower GHG emissions (mainly due to hydro electricity), and about 3/4 of emissions covered by the tax.

The Carbon Levy itself is elegantly designed, essentially along the lines that have been proposed by CCPA for many years (Alternative Federal Budget and my work on the BC carbon tax). In particular, it is not revenue-neutral in the strict sense of the term (financing tax cuts elsewhere), but rather, directs more than 2/3 of revenues ($1.7 billion in 2018/19) toward climate action expenditures: green infrastructure, energy efficiency, renewables, and innovation and technology. There is also a small business tax cut (rate lowered from 3% to 2%) at a cost of $200 million, and $50 million for just transition assistance in coal communities and indigenous communities.

The other big piece worth noting is a carbon credit, called a Consumer Rebate, but basically an income transfer to low- to middle-income households, valued at an estimated $590 million in 2018/19. An individual in 2018 will get $300, a couple $450, and $45 per child up to four children. One nice touch is that a single parent with one child would get the couples’ rate. In terms of amounts, this regime compares very favourably to BC’s low income credit, which is only $115.50 per individual and $34.50 per child (though the typical household in BC also emits fewer emissions and would pay less carbon tax).

The Alberta plan also has a higher threshold for getting the transfer/credit, meaning it reaches further up the income ladder: in 2018, for an individual it starts to phase out at $47,500, and is fully phased out at $55,000 (net income); for a couple, $95,000 and $103,750 respectively. In BC, the threshold is $32,737 for an individual to get the credit, and $38,193 for a couple or single parent.

Put this all another way, an individual Albertan below the threshold who has direct emissions of less than 10 tonnes per year would get back more from the credit than she would pay in carbon levy. Or for a family of four below the income threshold, if they have emissions less than 18.7 tonnes per year they are better off under this regime. People living and working in downtown Calgary would be better off, while those with long commutes would likely be worse off.

What’s it all mean? Even fully phased in the carbon levy is not likely to have much impact on behaviour, as it is pretty modest. At 6.7 cents per litre in 2018, the levy is just over half the rate of Alberta’s existing fuel tax of 13 cents per litre (although the carbon tax is also applied to heating fuels so it’s a larger base). If anything, this new carbon levy merely closes some of the gap between Alberta fuel prices and the rest of Canada (every time I’ve been in Alberta, one of my first reactions is “OMG is gas cheap here!”). A well-designed carbon tax should continue to rise every year, which continually reinforces the price signal, but it’s clear that the current government has decided it can only go so far in the prevailing political and economic climate.

The power of the carbon pricing regime is less that the price signal will encourage behavioural change, and more that it funds the green and just transition that’s needed for larger emission reductions over the long term, through all of the investments noted above. That’s particularly important given the present day push for more production and more pipelines, which goes in exactly the opposite direction and would dig the Alberta economy even deeper into fossil fuels.

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