Five Handy Facts About Alberta’s New Carbon Tax

Installing wind turbine

As of January 1, 2017, Alberta’s carbon tax has officially arrived.

And, as expected, there’s plenty of misinformation swirling around about what the tax will mean for Alberta citizens and businesses.

Ultimately, the idea behind the carbon tax is to put a price on polluting the atmosphere. Tweet: #CarbonTax encourages activities we do want (investment, innovation) & reduces those we don’t (GHG emissions) http://bit.ly/2hHsaNe #ablegIt sends a market signal to encourage the economic activities we do want (investment and innovation), while reducing those we don’t want (greenhouse gas emissions).

Doesn’t sound totally outlandish, right? But what will a price of $20 per tonne of carbon emissions really mean for Albertans?

DeSmog Canada did some digging to find out. Here are five handy facts to help you get clear on what the new tax means for you.

Fact #1: Two-Thirds of Albertans Will Receive a Rebate*

Let’s start with the most obvious place Albertans will  notice a difference: the gas station. The carbon tax translates to an increase of 4.49 cents per litre. For a 50-litre tank, that means it’ll cost an extra $2.25 to fill up. While you’d likely rather spend that on a double-double, it’s probably not going to break the bank.

What about the much feared knock-on effects of the price on carbon? It’s estimated the tax will increase the indirect costs of consumer goods by about $50 to $70 per person in 2017.

But before you start reaching for your piggy bank: 66 per cent of Albertans will receive a full or partial rebate for the carbon tax (all single households with a net income under $47,500 and all couples or families with a net income under $95,000).

The rebates are tied to income level, not the amount of energy one actually uses, meaning that Albertans can effectively make money from the carbon tax if they use a lower-than-average amount of energy  — which is kind of the point. Similarly, households with higher energy use than average, will end up paying more tax (even though the rebate will cover some of their expenses).

Two-thirds of households will receive money back and the first cheques will be in the mail this month. There’s no need to apply. Albertans will automatically receive a rebate if they submitted a 2015 tax return and are under the cutoff.

What about the upper third of income earners in Alberta? They will have to pay the full cost of the tax — however, they also have the option to do things like make their homes more energy efficient or choose a more fuel efficient vehicle to reduce the cost. Rebates and incentives will be available for purchasing and installing new energy-efficient appliances, products and systems.

And investments enabled by the revenue generated by the tax — in renewable energy, public transit and energy efficiency — will make it easier for everyone to reduce their emissions.

Fact #2: All of the Money Raised by the Carbon Tax Will Stay in Alberta

This is a biggie.

The $9.6 billion of revenue gathered over five years from the carbon tax will be kept in Alberta and reinvested in the economy.

None of it will end up in Ottawa. None of it will go into Alberta’s general revenue pool, despite the province’s urgent need to plug its $10-billion deficit.

Here’s how the spending breaks down:

$6.2 billion will help diversify Alberta’s energy industry and create new jobs:

  • $3.4 billion for large-scale renewable energy, bioenergy and technology

  • $2.2 billion for green infrastructure like public transit

  • $645 million for Energy Efficiency Alberta, a new provincial agency that will support energy efficiency programs and services for homes and businesses

$3.4 billion will help households, businesses and communities adjust to the carbon levy:

  • $2.3 billion for the above-mentioned carbon rebates to help low- and middle-income families

  • $865 million to pay for a cut in the small business tax rate from three per cent to two per cent

  • $195 million to assist coal communities, Indigenous communities and others transition to a cleaner economy

While it’s fair game to critique the way government decides to use revenue, it’s a fundamental misunderstanding of the policy to suggest that this is equivalent to a sales tax.

It’s simply a reallocation of capital. Instead of letting pollution enter the atmosphere free of charge, the carbon tax will price emissions and use the revenue to carve a new direction for the province.

That’s a homegrown solution that has nothing to do with the feds.

Fact #3: Taxing Carbon is Not a New-Fangled Idea

Some people have criticized the carbon tax because it wasn’t explicitly referenced in the NDP’s platform during the last provincial election.

That’s true – but it’s also because the work to craft the policy hadn’t been done yet.

After being elected, the NDP appointed the Climate Change Advisory Panel, chaired by the University of Alberta’s Andrew Leach, to investigate options. It spent five months holding engagement sessions, open houses and sifting through more than 500 submissions from stakeholders. It took another six months for the government to introduce the Climate Leadership Implementation Act, which included the carbon tax.

Everyone from oilsands companies to environmental organizations have expressed support for the plan.

Here’s why: Carbon pricing is one of the most popular mechanisms and is recommended by energy economists around the world. It’s transparent, easily adjustable and doesn’t arbitrarily pick winners and losers. Put simply, carbon pricing is the most market-friendly solution.

That’s why carbon pricing has been endorsed by the likes of former Reform leader Preston Manning, Conservative Party candidate Michael Chong, the International Monetary Fund and renowned Harvard economist Gregory Mankiw.

B.C. has had a carbon tax since 2008. Thanks to the carbon tax, British Columbia residents enjoy the lowest income tax in the country and use the least amount of fuel per person.

A report released in 2013 — five years into B.C.’s carbon tax — showed the policy had been a resounding success: within four years, B.C.’s per person fuel consumption had dropped 17.4 per cent while in the rest of Canada that number grew by 1.5 per cent.

Meantime, the B.C. economy continued strong. And, amazingly, the carbon pricing mechanism is B.C.’s most popular tax. Who knew there was such a thing?

Fact #4: There’s No Time Like the Present

It’s doubtful that there will ever be a “right time” to implement a carbon tax for critics. If it’s put in place during a downturn, Alberta is being “kicked while it’s down.” If it’s put in place during an uptick, the province wouldn’t want to “deter future investments.”

Many oil and gas companies are leveraging the downturn to rejig forecasts and priorities. Additionally, Alberta’s inaction on the environment has created enormous hurdles to attaining social licence for its chief export: the oilsands. The time to start down the right path and to diversify the economy is now.

Fact #5: The Carbon Tax Will Not Unfairly Harm Industry

The carbon tax will cost oilsands producers about $2.25 per barrel (or about four per cent of the price of oil as of today) — but given that oilsands projects qualify as an “energy-intensive, trade-exposed” sector, the government will use subsidies to keep Albertan oil competitive on international markets.

Under the subsidy — called “output-based allocations” — the top 25 per cent of companies that extract bitumen with the lowest per-barrel intensity relative to their peers will receive a subsidy as a reward, mostly outweighing the costs of their carbon tax; Leach recently noted the carbon tax will only cost 20 cents per barrel for the most efficient producers.

It’s a slightly convoluted way of ensuring that extremely energy-intensive operations, such as Nexen’s Long Lake, are punished, while producers with much lower emissions, such as Cenovus' Foster Creek, are rewarded (the difference between the two is roughly five times, according to calculations by the University of Calgary’s Trevor Tombe).

These subsidies will be reduced by a few percentage points per year to ensure continued efficiency. This regime will apply to all large industrial emitters, but will vary in specifics by sector.

And there are benefits for smaller companies as well. The NDP cut the small business tax rate from three to two per cent in an attempt to help alleviate concerns about disproportionate effects. Many exemptions were also handed out, including “marked fuel” for agriculture and any natural gas produced and consumed on site by conventional oil and gas producers.

At this point, it would be pretty disingenuous to suggest the carbon tax is anti-industry. Some have still tried. However, as economists have pointed out, the impacts of the carbon tax on commodity prices are miniscule compared to other factors.

Which brings us to our last point: to have the intended effect, does the carbon tax need to be higher? Absolutely. But we’ve all got to start somewhere. And it’s best to move ahead in a way that gets Albertans onside, rather than leaves them behind.

*Fact #1 previously read “60% of Albertans Will Pay Nothing At All.” While 60 per cent of Albertans will receive a “full rebate” from the Alberta government, whether their net cost is more than zero will depend on each family's energy usage. Families who qualify for the rebate and have average energy use will pay nothing at all. Families who use less than average energy will actually make money. Families with higher than average energy use will end up paying some carbon tax. You can read more about the details on the Alberta government's website.

Image courtesy of Idaho National Laboratory (INL) Wind Energy Program www.inl.gov/wind

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