Carbon Tax: Running my Numbers


I am so excited to read today that the Liberal government is planning to raise the tax on carbon up to $170 per tonne by 2030. The biggest problem with the previous carbon pricing program was that $50 per tonne was way too low. The price needs to be large enough such that capturing carbon is preferable to paying the tax. This announcement would finally put us into that ballpark.

Last fall I was discussing with someone who claimed that the carbon tax was just a tax grab and did not believe that the Liberal government was really going to pay the funds back out through the Climate Action Incentive tax credit. I did believe it would be paid out, but to be certain, I figured I should run the numbers.

The major carbon tax payments for my household is (1) natural gas for heating, and (2) gasoline for driving. Between April 2019 and March 2020, I paid $61.83 in carbon taxes for natural gas heating. During the same period I bought approximately 651.612 litres of gasoline. At a price of 4.42 cents per liter, I estimate I paid about $28.80 in carbon taxes for that gasoline. That brings me to a total of $90.63 paid in carbon taxes for that period.

On my 2018 tax return I received a $231 Climate Action Incentive tax credit for my household. That leaves me with a net benefit of $140.37 as a reward for emitting less carbon than average. This is to be expected because average household carbon emissions are much higher than median household emissions due to a relatively few high emitters.

I am omitting carbon tax charges for other incidentals, most notably for airfare. If anyone has any methods for calculating the carbon tax on airfares, please let me know. However, I have little doubt in my mind that this $140.37 more than covers any other outstanding carbon tax costs. Also keep in mind that the Climate Action Incentive tax credit was paid in advance with my 2018 income tax return, before I paid any carbon taxes at all.

Some people on twitter were wrongly arguing that the Climate Action Incentive tax credit is income based. I filled out my income tax return and the $231 value was based on the size of my household and was independent of my income.

The carbon tax program is great because it lets market forces determine how best to reduce carbon emissions. Those few households that are emitting most of the carbon are financially incentivized to change their consumption patterns. For reasons that I do not understand, both the federal and Ontario Conservative parties hate market solutions. Their "solution" to the carbon problem is to have their governments pick winners and losers themselves. No doubt that way they can make sure their cronies just happen to be among the winners.

One could argue that I am being selfish, because the more the tax on carbon increases, the more rewards I earn. On the other hand, perhaps those Canadians who are arguing against the carbon tax should run their own numbers and see how much they benefit from this carbon program.


Russell O’Connor: contact me