Skip to navigation Skip to content

News  •  2 min

The true and false on carbon tax and cost of living

Published on 

We've heard a lot about carbon pricing (the carbon tax) this year, especially from those who want to see it abolished on the grounds that it’s responsible for all economic woes. But a closer look reveals that its impact on inflation is only marginal, and that it helps a large number of families, especially those with low and middle incomes. If it’s being used as a scarecrow, it’s to avoid talking about the real problems of consumption. And those who promise that its abolition will solve our economic problems are misleading people and raising the stakes of disappointment and cynicism.

Here are 5 things that you need to know to better separate true and false:

1. First of all, what is a carbon tax?

Carbon pricing puts a price on greenhouse gas (GHG) emissions so that companies and individuals will factor the cost into their decision-making and reduce their emissions. It’s a general incentive to consume less energy and opt for less polluting types of energy. For example, someone who owns a particularly large, gas-guzzling vehicle will pay more at the pump than someone who owns a more efficient or an electric vehicle.

Carbon pricing can take the form of a carbon tax (direct), like the federal tax, or a carbon market (indirect), as we have in Quebec.

2. Does the federal carbon tax apply in Quebec?

No! In Quebec, we have our own system to encourage GHG emissions reduction. The cost-of-living issues that Quebecers are dealing with will not be solved by promising to abolish federal carbon pricing. None of them. Bread, milk, eggs, etc., will cost exactly the same with or without a federal carbon pricing mechanism. The price of gasoline depends on the mood and desired profit margins of producing countries. The price of cars and trucks depends on the profit margins desired by the auto industry.

Quebec, along with several other provinces, have their own mechanisms. The federal carbon tax system applies only to the provinces that don't.

3. Does the carbon tax increase the cost of living in the provinces where it is in effect?

No, because it's a revenue-neutral measure, meaning that the money collected by the tax is redistributed to taxpayers. You pay for your carbon use, but the money is then deposited back into your bank account. In most cases, and especially for low and middle income households, the reimbursements are greater than what they pay via the carbon tax. And it's not just the government that says so. Recent economic studies support this claim.

4. Does the carbon tax contribute to inflation?

Yes, but only to a very small extent. The Governor of the Bank of Canada has estimated that 0.15% of the inflation increase can be attributed to the carbon tax. It’s not insignificant, but not major either. What differentiates it from other causes of inflation is that the extra money paid because of the carbon tax is put back into people's pockets, so ultimately it does not increase the cost of living.

5. So, what’s causing the increase in the cost of living?

Lots of things - global conflicts, challenges in the housing market... But fossil fuels and the climate crisis are at the root of many challenges and price increases, for example:

  • groceries, because of climate change’s impacts on harvests here and elsewhere in the world;

  • municipal taxes, because of its impacts on infrastructure;

  • insurance premiums, because of its impacts on personal assets.

Carbon pricing benefits those who need it most

Canadians understand that the climate crisis is going to cost us more and more, and that the energy transition is inevitable. Carbon pricing is one of the most effective climate policies towards the energy transition. It seeks to reduce GHG emissions, by sending a monetary signal that our use of carbon is costing us dearly because of the climate disruption it inflicts.

And it's going to cost us more and more if we don't take responsibility for reducing our collective consumption of fossil fuels.

We can't afford to open the door to exceptions, postponements or weakening of the carbon tax. Because the more the system starts to resemble a piece of Swiss cheese, the less sense it makes as a whole.

We have a collective responsibility to counter the spread of misinformation and the politicization of climate policy. Because if we do away with the carbon tax, we'll all be worse off in the end.

Can you tell the difference between climate misinformation and climate disinformation?

Have a look at our resource