In 2019 Canada introduced a price on carbon pollution as a measure to discourage fossil fuel consumption and thus meet the target of zero emissions in 2050. Because of this provision, Canadians pay approximately US$0.34 extra for each gallon of gasoline, a value that will increase to US$1.13 in 2030. Today, when inflation in the country has reached its 39-year high, which reached 8.1% in June, this tax is once again in the center of debate.
The carbon tax represents 25% of the taxes included in the price of gasoline. If fuel prices are excluded, which have increased by more than 50% in the past year, the cost of living would have increased by only 6.5%; That is, 1.6 basis points less. Some voices question the tax’s efficiency, arguing that the reduced consumption of fossil sources has not resulted in a significant reduction in emissions, While it is having an inflationary effect.
Canada’s experience in this area is an important reference point for other countries. Canadians are some of the largest consumers of oil and refined products in the world. Before the pandemic, per capita consumption of gasoline was 335 gallons, while diesel consumption had reached 226 gallons.
These numbers are mainly explained by being the second nation with the largest area, which travels greater distances, moreover, the country’s population is close to 39 million people and is scattered across different regions, Which increases the need for long journeys.
Arguing a higher impact on the economy, the Canadian Federation of Independent Business called for a temporary suspension of the collection of the carbon tax, ensuring that their profit margins were being affected. “Every penny counts for small businesses, especially as they navigate input costs and labor shortages that cause outputs to skyrocket,” said Corinne Pohlman, Vice President of National Affairs of the Union.
In the political arena, conservatives, opponents of Justin Trudeau’s government, have assured that they will put an end to the charge if they win the next federal election. An issue that is not trivial given that Canadians could be called for re-election this fall. For now, the government defends itself and argues that higher gasoline prices are determined by other factors.
“The fact is that gasoline refining margins in Canada increased by more than 113% between June 2019 and June 2022, and oil and gas companies are experiencing record cash flows,” explained Steven Gilbault, Minister of Environment and Climate Change.
The uniqueness of this tax in Canada is due to the fact that about 90% of what is collected is returned to taxpayers. The idea behind this dynamic is simple, prompting people to consume less fuel through higher prices, but at the same time, people who demand less gasoline, or migrate to electric vehicles, can receive economic benefits if the refund value is in excess of the amount earmarked to pay this tax.
According to government calculations, an Ontario family of four would be entitled to a C$745 ($573) exemption this year, so most families would receive more than they paid as a result of the federal tax system. Carbon pollution pricing. However, a report by the Parliamentary Budget Office (PBO) concluded that for most Canadians, especially high-income Canadians, the federal carbon price represents a net loss.
According to the World Bank, there are 68 direct carbon pricing instruments in the world today that are implemented in 46 countries, accounting for about 20% of global emissions. Among the measures they are adopting are 36 carbon tax regimes and 32 emissions trading systems. The latter are a type of tradable permit that sets a limit on the amount of greenhouse gases that can be emitted.
Only five countries in the US, Canada, Mexico, Colombia, Chile and Argentina, apply some form of carbon tax. The Canadian government has the highest tariff, US$40 per tonne of CO2, while the rest of the country imposes one that does not exceed US$5 on average.