Can we make carbon pricing fair for low-income households?

Governments can — and should — design carbon pricing policy to be fair

• Canadian provinces are designing systems that are fair — that is, that do not impose disproportionate costs on low-income households. They do so by dedicating some of the revenues to this goal.

Carbon pricing raises legitimate concerns about fairness

• Carbon pricing policies alone — before considering how carbon pricing revenue is recycled back to the economy — can have a disproportionate impact on low-income households (i.e., they can be “regressive”). Low-income households tend to spend a greater share of their income on carbon-intensive necessities like transportation, heating, and electricity.
• Impacts will vary across provinces, depending on province-specific factors such as the availability of transport alternatives, the design of carbon pricing policy, and the extent to which electricity generation relies on more emissions-intensive sources such as coal or natural gas, or cleaner sources such as hydro or wind.
• Ecofiscal Commission analysis finds that carbon costs do not vary significantly across rural and urban households.

Revenues from carbon pricing can address fairness concerns

• Governments can ensure carbon pricing is fair by using some revenue to provide credits for low-income households (similar to how low-income households receive quarterly GST or HST sales tax rebates).
• Addressing fairness concerns in this way does not undermine the carbon pricing policy.
  • Low-income households still have an incentive to reduce emissions, since rebates are tied to their income, not their GHG emissions.
  • For those with low enough emissions, carbon pricing might even provide a net benefit.
• Governments can meaningfully address fairness concerns and still have money left over for other priorities, like lowering taxes.
  • For example, Ecofiscal Commission research finds that only 9% – 13% of carbon pricing revenues are needed to fully offset carbon pricing’s costs to the bottom 40% of households when ranked by income levels.

Canadian provinces are currently taking this approach

• The three Canadian provinces with carbon pricing all use a portion of the revenues to address fairness concerns:
  • British Columbia and Alberta transfer revenues directly back to households; BC also cut personal income taxes for the two lowest income brackets
    • See here (page 105) for information on BC’s tax cuts
    • See here for Alberta’s household costs and rebate amounts
  • Quebec  (and previously Ontario) uses revenues to help households in reducing their carbon costs (e.g., by supporting home retrofits, providing better public transit, etc.).

 

More Fast Facts on Carbon Pricing