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, thewhole point of a carbon price is to change our behaviour, so that we use less fossil fuel. The price will go up forcarbon intensive productslike fuel for our vehicles andheat and (non-renewable) powerfor 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 asfood and other retail goods, since they are often transported by diesel-burning vehicles.

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In a study donein 2012, Nicholas Rivers, an associate professor at the University of Ottawa, found that a $30 pertonne 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 pertonne cost in theyear 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, whichis 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 secondmost expensive in Canada, after Newfoundland and Labrador. That isbased on a $30 pertonnecarbon 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 poweringyour home

How much heating costs will go up with a carbon price will depend on how youheat your home. If it iswith 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 Albertansfor natural gas heat wasonly $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 pertonne carbon tax would add 8.4 cents per litre to the cost of heating oil. Again all these number would increase by two-thirdsto capture the cost of a $50 pertonne 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 hitby 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 carbonpriceistoraiseparticular costs so that it changes ourbehaviour, said Chris Ragan, chair of the Ecofiscal commission. But we needto 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."