Montreal – Emissions pricing policies such as the federal fuel charge and the B.C. carbon tax have had a minimal impact on inflation, contributing less than 0.5 per cent to increases in consumer prices since 2019, according to a new study from the Institute for Research on Public Policy. That’s a small fraction of the more than 19 per cent rise in prices over that period.

But governments should be finetuning and better communicating their policies to help the Canadians most in need.

“Our study shows that, contrary to popular belief, emissions pricing isn’t driving Canada’s affordability challenges,” explain the study’s co-authors Trevor Tombe and Jennifer Winter, economists at the University of Calgary. “Most price increases for everyday essentials and consumer goods have been because of global factors like surging energy prices and supply-chain disruptions. The slow pace of income growth has also affected affordability.”

They found that government rebates such as the Canada Carbon Rebate, which provide a cushion against the cost of emissions pricing, have helped curb the impact.

While households in provinces with a higher reliance on fossil fuels experience relatively higher costs from emissions pricing, the federal government’s carbon rebate has mitigated these impacts. In provinces that face the federal fuel charge, the rebates often exceed the additional costs incurred by households, particularly for those with lower incomes.

“The Canada Carbon Rebate results in a net financial gain for many low- and moderate-income families. Lower-income households and families with children, who spend more of their income on essentials like energy, are also among the largest beneficiaries of the rebates, meaning they are mostly sheltered from emissions pricing,” say Tombe and Winter.

However, the authors caution that not all rebates result in net gains for citizens. For example, British Columbians, who receive the province’s income-tested Climate Action Tax Credit instead of the Canada Carbon Rebate, often end up paying more in the carbon tax than they receive in rebates. By taking a similar approach to the federal government or by increasing its rebate amounts, B.C. could help a greater proportion of residents come out ahead under emissions pricing.

The study, which was commissioned by the Affordability Action Council, does not aim to forecast future impacts of emissions pricing or assess its effectiveness as a climate policy tool. Instead, it evaluates its historical role in Canadian affordability dynamics.

The results suggest that policymakers seeking to address affordability challenges should consider all drivers of price increases. They should also consider the income side of the affordability challenge, given that the slow pace of income growth continues to erode household purchasing power.

“Our study shows definitively that emissions pricing is not a primary driver of affordability challenges in Canada. Through thoughtful policy design, and by more clearly communicating how emissions pricing impacts households, Canada can address climate change while still maintaining affordability for its citizens,” say Tombe and Winter.