Does combining carbon pricing and household rebates affect incentives?

Household rebates do not undermine the incentives created by carbon pricing

  • Carbon pricing and household rebates are a two-step process, and these two steps work independently of one another.
    • Carbon pricing changes how much high-carbon goods cost relative to low-carbon goods
    • The rebates sent to households are all the same size, regardless of your income or how many GHG emissions you produce.
  • The carbon price provides an incentive to reduce GHG emissions; the rebate ensures that most people are no worse off financially than they were before the carbon price.
    • Examples to illustrate this idea can be found here, here, and here.
  • Therefore, there is still a financial incentive to switch from higher-carbon goods to lower-carbon goods when rebates are in place.

Rebates are just one of many options for recycling the revenues from carbon pricing

  • Rebates are just one way to return revenues.
  • Governments can recycle revenues to households through income tax cuts, tax credits, or subsidies.
    • British Columbia, for example, returns revenues to households with a mix of income tax cuts and tax credits.

Provinces that opt in to the federal system can use the revenues as they see fit

  • Under the Pan-Canadian Framework on Clean Growth and Climate Change, any province that implements a carbon price that meets federal standards can use the revenues as it sees fit.
  • Provinces can also opt-in to the federal system, and have the revenues returned to them to use as they see fit.
  • There is nothing stopping a province from opting into the program and using carbon pricing revenues to cut income taxes or invest in clean technology or infrastructure.

Other Resources

 

More Fast Facts on Carbon Pricing