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Carbon Pricing Costs for Households and Revenue Recycling Options in Canada
Using household microdata, we quantify the costs of carbon pricing for households in each province and across the income distribution, and analyse revenue-recycling options based on existing provincial policies (where appropriate) as well as alternative revenue recycling options. Specifically, we quantify both direct and indirect costs for households, and using revenue-recycling policies, identify the net costs to households. To do this, we construct estimates of household energy use (electricity, natural gas, gasoline and home heating oil) by province and income quintile. Our methodological approach to including indirect costs allows us to investigate the effect of complementary policies — such as the federal output-based pricing system for large emitters — in mitigating costs to households. We then use Statistics Canada’s Social Policy Simulation Database and Model (SPSD/M) to analyse revenue-recycling options: (1) an HST tax rate reduction; (2) an increased basic exemption for personal income taxes; (3) a GST rebate; and (4) a lump sum dividend. We find the carbon tax is generally regressive, the GST rebate and lump sum rebate are progressive, the HST tax rate reduction has mixed effects, and the income tax change is regressive. Importantly, the large-emitters system mitigates indirect costs that exacerbates the effect of carbon pricing on households.

Oct 7, 2020 10:00 AM in Eastern Time (US and Canada)

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