Carbon tax had ‘negligible’ impact on inflation, new study says

A recent study conducted by University of Calgary economics professors Trevor Tombe and Jennifer Winter has revealed that the Liberal government’s carbon tax had a minimal impact on the inflation experienced by Canadians between 2019 and 2024. The study, commissioned by the Affordability Action Council, analyzed consumer prices in Canada during this period and found that prices increased by 19.3 per cent. However, when indirect tax changes such as sales, excise, and carbon tax adjustments were factored out, the study reported that prices rose by only 18.7 per cent.

The carbon tax was implemented in April 2019 at a rate of $20 per tonne and gradually increased to $80 per tonne by April 2024. Despite this increase, the study concluded that the overall impact on consumer prices was only 0.5 per cent higher due to the rising indirect taxes. The authors of the study emphasized that global factors, such as surging energy prices and supply chain disruptions caused by the pandemic, had a greater influence on price increases during this period.

One noteworthy finding of the study was that the carbon rebate program implemented by the federal government played a significant role in mitigating the financial impact of the carbon tax on households, particularly those with lower incomes. The carbon rebate program ensures that 90 per cent of government revenues from the carbon tax are returned to households through quarterly Canada Carbon Rebate payments. The remaining 10 per cent of revenue is allocated to programs aimed at reducing fossil fuel consumption in various sectors.

The study’s findings align with the analysis conducted by the Office of the Parliamentary Budget Officer (PBO), which found that most households, especially those with lower incomes, actually benefit from the carbon rebate program. The report highlighted that the rebates effectively offset fuel rate charges, shielding many families from the negative financial consequences of emissions pricing and potentially resulting in a net financial gain for some.

Overall, the study underscores the relatively small impact of emissions pricing on inflation compared to other economic pressures, such as global energy prices. It emphasizes the importance of carbon rebate programs in ensuring that households are not disproportionately burdened by the costs of emissions pricing. The findings of this study provide valuable insights into the effectiveness of carbon pricing policies in achieving environmental objectives while minimizing financial hardships for Canadian households.