What a carbon price means for consumers

This story was originally published Oct. 4.

As the political debate rages on about a federally imposed carbon price, it's useful to take a look at how this will affect consumers.

After all, the whole point of a carbon price is to change our behaviour, so that we use less fossil fuel. The price will go up for carbon intensive products like fuel for our vehicles and heat and (non-renewable) power for our homes, to give us incentive to use less energy. The less we use the less we'll pay.

Prices will also rise for items that we don't immediately think about, such as food and other retail goods, since they are often transported by diesel-burning vehicles.

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In a study done in 2012,  Nicholas Rivers, an associate professor at the University of Ottawa, found that a $30 per tonne carbon price added taxes ranging from six per cent for gasoline to more than 100 per cent for coal, depending entirely on the carbon intensity of the fuel. With a $50 per tonne cost in the year 2022, that tax will increase proportionally.

In practical terms, by looking at Quebec (which has put a price on carbon since 2011), B.C. (which has had a tax since 2008), and Alberta, which is about to impose one, we can see the impact on a litre of gasoline, or a gigajoule of natural gas.

Price at the pumps

In B.C, a carbon tax of 6.67 cents per litre is added at the pump, making B.C. gasoline the second most expensive in Canada, after Newfoundland and Labrador. That is based on a $30 per tonne carbon price. In Alberta, when its $30 per tonne tax is fully implemented in 2018, the gasoline tax will be roughly the same.

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Under the Liberal plan, when the carbon price reaches $50 per tonne in 2022, that will effectively add 11 cents per litre to the price of gasoline.

In Quebec, with its cap-and-trade system, it's a little more difficult to tease apart exactly how much the carbon tax adds to a litre of gasoline, depending, as it does, on the auction prices for carbon. In a blog post in March 2016, Roger McKnight, senior petroleum analyst with En-Pro, found that the tax was around six cents a litre.

Heating and powering your home

How much heating costs will go up with a carbon price will depend on how you heat your home. If it is with hydro-powered electricity, the carbon tax won't have an effect. If it's with natural gas or heating oil, it certainly will.

In Alberta, where most homes are heated by natural gas, it will mean a significant increase. Under the current carbon plan, in 2018, there will be a tax of $1.51 a gigajoule. In October, the price charged to Albertans for natural gas heat was only $2.66 a gigajoule.

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In B.C., the tax was $1.49 a gigajoule. A researcher in Nova Scotia suggested a $30 per tonne carbon tax would add 8.4 cents per litre to the cost of heating oil. Again all these number would increase by two-thirds to capture the cost of a $50 per tonne carbon tax.

As for the cost of electrical power, it depends on the power mix in your province, if it's renewable, it's negligible; if it's coal based, watch out.

Impact on low-income families

In his study, Rivers found that low-income families were disproportionately hit by the carbon tax, which is  why provinces typically work to offset the pain. In Alberta, families with a household income of less than $95,000 will qualify for a rebate. In B.C. that threshold is lower, with payments decreasing once income exceeds approximately $38,000 for a family.

"The whole point of a carbon price is to raise particular costs so that it changes our behaviour, said Chris Ragan, chair of the Ecofiscal commission. But we need to be mindful of the impact on, in particular, low-income households.  

"Governments are going to be under pressure to make sure they are paying attention."