The Liberal government’s carbon price had minimal impact on the inflation experienced by Canadians between 2019 and 2024, a new study finds.
The report by University of Calgary economics professors Trevor Tombe and Jennifer Winter looked at how the carbon tax affected Canadian consumer prices from January 2019 to April 2024. .
According to the study, consumer prices rose 19.3% during that time. Excluding the “impact of indirect tax changes” such as sales tax, excise tax and carbon tax changes, prices would rise 18.7%, the report said.
“This means that overall consumer prices have increased by only 0.5% over this period due to gradually increasing indirect taxes,” said a study commissioned by the agency. Affordability Action Council.
The carbon tax started in April 2019 at $20 per tonne, increased by $10 per year to $50 by 2022, and began increasing by $15 per ton in 2022. In April 2024, the price rose to $80 per ton.
“Although emissions pricing represents the most significant change in taxes on goods and services, such taxes themselves have a negligible impact on aggregate price changes,” the study says.
The study said most of the price increases over this period were due to global factors such as soaring energy prices and supply chain disruptions caused by the pandemic.
“Global oil price increases have a much larger impact on overall costs than domestic emissions pricing policies,” the study authors said.
The report found that when Canada’s Consumer Price Index for June 2022 showed prices rising 8.1% year over year, 2.6% of that 8.1% increase was due to higher energy prices. said.
When oil prices fell from a peak of $120 per barrel in June 2022 to $70 per barrel a year later, inflation settled at 2.8%.
“Although emissions pricing does affect costs, its role in promoting inflation is relatively small compared to other economic pressures,” the study said.
Carbon rebates and inflation
Quebec, British Columbia, and the Northwest Territories have their own carbon pricing regimes that meet federal standards, so no federal carbon price or backstop applies.
In states using the federal backstop, the carbon price is fuel charge rate This varies from fuel to fuel based on the CO2 equivalent emissions produced during combustion.
Ninety per cent of government revenue from the carbon tax is returned to households through quarterly Canada Carbon Rebate payments.
The remaining 10% of carbon tax revenue will go toward programs that help businesses, schools, municipalities, and other grant recipients reduce their fossil fuel consumption.
The Parliamentary Budget Office (PBO) found that most households, especially those at the bottom of the income scale, ultimately benefited as the amount they paid through the carbon price was offset by the amount they received in rebates. did.
The new study is consistent with PBO’s analysis. “Rebates generally cover fuel costs.”
“This means that many households, especially low-income households, are protected from the negative economic impacts of emissions pricing, and some may end up seeing a net economic benefit.” says the report.
