Support for Canada’s federal carbon tax for the control of greenhouse gas emissions appears to be crumbling after Ottawa’s decision in the fall to exempt home heating oil from the tax until 2027. Polling by the Angus Reid Institute indicates that two-thirds of Canadians support a further exemption for all home heating fuels, including natural gas, and many (42 per cent) want the carbon tax abolished altogether.
Yet exempting natural gas from the carbon tax, or eliminating the tax altogether, would actually harm most of the households who support the idea. That is because the proceeds from the tax are pooled and then rebated to households in the jurisdiction in which they are collected (the federal carbon tax applies everywhere except B.C., Quebec and the Northwest Territories).
What to know about Trudeau’s carbon pricing system and the latest exemptions
Research shows that most of the population receives more back in the rebate than they pay in the carbon tax, and this is especially true at middle and lower-income levels. Thus, if the axe-the-tax movement gets its wish, it will typically only help the richest Canadians.
It has also been pointed out that the impact of the tax on the economy creates an additional cost beyond the tax itself, and therefore it should not be surprising that many Canadians oppose it. But this argument is spurious, as it does not consider the long-term benefits of controlling climate change.
A recent C.D. Howe Institute Intelligence Memo provides a key discussion of this climate-change cost dilemma. Economists agree that if Canadians expect to contribute to controlling climate change, a carbon tax is among the most efficient ways of going about it.
So how did we end up in a situation where a majority of voters are willing to support a change that would make most of them financially worse off, compared with other alternatives for controlling greenhouse gas emissions?
While the federal government deserves credit for the design and implementation of the carbon tax and rebate system, it is also to blame for failure to adequately explain it to Canadians. This is particularly true regarding the rebate, as the Angus Reid poll showed that half of the population are either unaware of the carbon tax rebate or unsure whether they are receiving it.
The first step to improving the situation is to adopt a clearer label for the rebate. At present, the government refers to it as the “climate action incentive payment,” a descriptor that fails to make a clear connection between the payment and the carbon tax. This link should be made more explicit – for example, “carbon tax rebate.”
Second, for the many recipients who receive the rebate as a direct deposit in their bank accounts, there is clearly a problem with the labelling used by the banking sector. According to the government’s website, the deposit should be labelled on the account statement as “climate action incentive.”
However, a survey we conducted of clients of nine banks shows that most use uninformative descriptors. Only one, RBC RY-T, has followed the government’s guideline for the deposit label, with “Climate Action Incentive CANADA”; another bank, ATB Financial, is close, with “Direct Deposit Federal Climate Incentive CANADA.”
The remaining seven banks – Bank of Nova Scotia BNS-T, Toronto-Dominion Bank TD-T, Bank of Montreal BMO-T, HSBC, Canadian Imperial Bank of Commerce CM-T, Tangerine and Simplii – are completely uninformative regarding the nature of the deposit. That includes TD (which calls it “Canada CAI”), Scotiabank (”Canada CAIP”), BMO (”Canada CAI/IAC”), HSBC (”Canada CAI”), CIBC (”Deposit Canada”), Tangerine (”EFT Deposit from Canada”) and Simplii (”EFT Credit Canada”). Households can be excused for not being aware that they have received the carbon tax rebate if they do not know what “CAIP” or “CAI” mean.
Third, in order to maximize visibility, the rebate should be distributed to households on a monthly basis. From 2019 to 2022, a single payment was sent to households once a year. Then, beginning in July, 2022, the frequency was increased to quarterly. No doubt the government issued a press release at the time of the change, and it may have been mentioned in some media outlets, but clearly many households did not get the message.
The only way to make sure the news is heard is to repeat the message as often as possible through frequent payments. This approach would also align with similar programs, such as the Canada Child Benefit, which are deposited monthly.
With repetition, people will come to expect it. Who knows, with a clear label and monthly deposits, it might even become popular.
Leslie Shiell is an assistant professor in Economics at the University of Ottawa. Jay Batu is a master’s student in environmental sustainability at the University of Ottawa.
Published in the Globe and Mail
