Ammar, Nasreddine; Laurin, Marianne; Sourang, Diarra

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Climate Plans and Targets

A Distributional Analysis of the Federal Fuel Charge under the 2030 Emissions Reduction Plan

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Nasreddine Ammar; Marianne Laurin; Diarra Sourang

Published on March 30, 2023 PDF

This report provides a distributional analysis of the federal fuel charge under the Government’s 2030 Emissions Reduction Plan.

April 17 2024: Estimates of household net costs incorporating “fiscal and economic impacts” reflect the broad economic impact of federal-equivalent carbon pricing—that is, the economic impact of the fuel charge and output-based pricing system (OBPS).

April 17 2024: Distributional analysis of carbon pricing (Additional Analysis)

March 24 2022: A Distributional Analysis of Federal Carbon Pricing under A Healthy Environment and A Healthy Economy (Report)

July 4, 2024: Text in the March 30, 2023 version of this report was revised to ensure consistency with the economic impact of federal-equivalent carbon pricing (that is, the fuel charge and output-based pricing system). Estimates of economic impacts and household costs have not been revised.

Highlights

Under the Government’s 2030 Emissions Reduction Plan, the federal fuel charge is set to rise from $65 per tonne of carbon dioxide equivalent in 2023-24 to $170 per tonne in 2030-31.
In 2023-24, the federal fuel charge will be expanded to include Nova Scotia, Prince Edward Island, and Newfoundland and Labrador. The federal fuel charge will continue to apply to Alberta, Saskatchewan, Manitoba and Ontario.
When both fiscal and economic impacts of the federal fuel charge are considered, we estimate that most households will see a net loss, paying more in fuel charges and GST, as well as receiving lower incomes, compared to the Climate Action Incentive payments they receive and lower personal income taxes they pay.
However, relative to disposable income, our estimates of household net cost of the federal fuel charge show a progressive impact that is, larger net costs for higher income households.
In 2023-24, with the federal fuel charge set at $65 per tonne, we estimate that the Government will collect and return $11.8 billion in fuel charges in the seven provinces where the charge applies. With the charge rising to $170 per tonne in 2030-31, we project that the Government will collect and return $25.0 billion in fuel charges.

Environmental Sustainability

Economic forecasts

Fiscal Sustainability

Fiscal policy

Taxes (Other)

Demographic indicators