What UCP's plan to kill Alberta's carbon tax might actually mean at the pump

If the United Conservative Party sweeps to power when Albertans go to the polls on April 16, leader Jason Kenney says his first order of business would be scrapping the ousted NDP's carbon tax.

The UCP platform states eliminating the $30/tonne levy — which applies to everything from filling a tank of gas to heating a home — would save the average Albertan hundreds of dollars and create thousands of jobs.

So if Alberta's carbon levy goes, what would actually happen? 

Here's a breakdown of what the UCP is promising and how its plans for the carbon tax could actually impact consumers.

Tax brings in $1.4B a year

Consulting firm Stokes Economics prepared forecasts used in the UCP's platform. Company president Aaron Stokes says one of the biggest benefits to the UCP's plan would be cutting the operating costs of the carbon tax.

He says the UCP would still continue to fund green infrastructure initiatives that Rachel Notley's NDP government put in place.

The tax is expected to bring in roughly $1.4 billion this year in revenue, and the UCP's platform says cutting it would save Albertans the same amount.

However, economist Trevor Tombe says it doesn't make sense to look at how much the carbon tax's removal would boost the economy.

"Putting [the tax revenue] back into the pockets of households and businesses does not automatically increase GDP by that amount because it's not like the government lights the money on fire," says Tombe.

OK, so that's the big picture. 

The UCP explains in detail how it believes eliminating the tax would help households.

Savings estimate 'very misleading': economist

UCP Edmonton-West Henday candidate Nicole Williams tweeted last week the average family would save up to $1,150 a year.

It was a claim Kenney repeated during the leaders' debate.

But Tombe says that's pretty deceptive unless you've mixed up the average family with the One Per Cent. Just 1.2 per cent of households spent more than $1,000 due to the tax.

"That is very misleading…. If you look at the full, overall average across households, you see that costs are nowhere near $1,150. That's really the outlier, very top-end estimate, for very high-income households," Tombe says.

The UCP's actual platform is more accurate than Williams' tweet.

It states 725,000 families would receive tax cuts between $25 and $1,150, citing research compiled by Tombe and colleague Jennifer Winter for the University of Calgary.

Carbon levy has no cost for 40% of Albertans

The party says a single Albertan who makes $50,000 per year would save $286.

Let's apply the government's online carbon levy rebate calculator — including its suggested gasoline and natural gas consumption values — to that same single person.

According to the calculator, the carbon tax would cost the person $444 annually — then they'd get $233.32 back.

That's a net cost of $210.68, about 73 per cent of what the UCP estimated (and it's possible the party's calculation was done using different values).

That $50,000 number may have been chosen to best highlight the UCP's position.

Albertans who earn less than $47,500 per year receive a full rebate, as do families who earn less than $95,000 per year.

The NDP estimates 60 per cent of households get a full or partial rebate.

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Tombe says his research found that, for 40 per cent of Albertans, the levy didn't cost them anything and most low-income families actually made money from the rebates.

"If we look at those with incomes below $60,000 per year, then 70 per cent of those families have net costs that are negative," he said.

Will 6,000 jobs be created? Depends on who you ask

Stokes Economics estimates 6,000 jobs would be created if the UCP cuts the levy.

Stokes said, in an emailed statement, his firm maintains a set of macroeconomic models that allowed them to calculate the impact.

He says the estimate of 6,000 jobs being gained should be seen in the context of the size of Alberta's labour market.

It's an increase of 0.2 per cent, based on the expectation there would be broad gains across industries and more people would move to the province.

"The dynamic impacts on Alberta's economy are positive largely based on the design of the UCP plan. Had the capital expenditure component been eliminated, this story may have been a negative one due to the losses in investment and construction activity, which would spread to other sectors of the economy in a reverse fashion," Stokes says.

Tombe says that while it's possible the plan could generate jobs, 6,000 is likely too specific a claim.

"It's a difficult empirical challenge to measure the effect of carbon taxes on employment," says Tombe.

• What is a carbon tax, and will it make a difference?

He cites two research papers done on the issue, both by graduate students at the University of Calgary:

• One found no negative effect on employment in B.C. from that province's carbon tax.
• The other found a negative effect on employment in B.C., particularly among lower educated employees in energy and emission-intensive sectors.

"Research on that is ongoing. So we really shouldn't be hanging our hat on any specific number like 6,000."

If the tax goes out, the backstop kicks in

It's unclear how soon the federal backstop would kick in if Alberta's carbon levy were cancelled, but once it does, it would be $20/tonne until 2020 — $10 less than Alberta's current rate. 

In terms of the direct effect on household bottom lines, yes, there would be savings for the average household under the federal system.- Trevor Tombe, U of C economist

To be clear, the provincial carbon tax and federal carbon tax don't stack on top of each other.

Federal carbon pricing only applies to provinces that don't have an independent carbon pricing plan.

On April 1, the day federal pricing went into effect, Kenney stood in front of a sign claiming the "Notley-Trudeau Carbon Tax" would eventually cost Albertans 11.2 cents/litre.

"Eleven cents more to fill up. That's what the Trudeau-Notley carbon tax will cost Albertans at pumps like this across our province," he said.

Alberta's carbon tax currently sits at six cents a litre, and the federal tax is four cents.

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A spokesperson for Environment Canada says there will be an annual verification process to confirm provinces meet the federal benchmark, and while Alberta's plan currently fits the bill, major changes to provincial systems will be monitored on an ongoing basis. 

"Once a decision is taken to implement the federal system, the Government of Canada will move as quickly as possible in order to minimize a gap in coverage," the agency says in an emailed statement.

As Ottawa's carbon tax costs and rebates have only been calculated for provinces that don't have their own pricing plans, no federal numbers are available to show exactly what Alberta's costs would look like.

CBC News calculations for the four provinces currently subject to the federal tax found the cost to fully refuel a Honda Civic (based on a 47-litre tank) increases by about $2. And an average Ontario household would pay roughly $10 more each month for natural gas.

• What you need to know: Federal carbon tax takes effect in Ont., Manitoba, Sask. and N.B. today

Those costs are expected to rise each year as the carbon tax increases by $10/tonne until it hits $50 in 2022 — meaning they would more than double in less than three years' time.

The federal government says that while costs would go up, carbon pricing is expected to change consumer behaviour as more transition to energy efficient measures — meaning households would save money in the long term.

Ottawa says 70 per cent of Canadians would receive more in rebates each year than they pay.

The point of a carbon price is not to raise revenue. It's for people and businesses to find creative ways to avoid paying it.- Brendan Frank, Ecofiscal research associate

Kenney has stated he intends to fight the federal carbon pricing introduced by Justin Trudeau's government by joining other provinces in a constitutional challenge. 

Experts have said that argument is unlikely to succeed in court. 

Unless (or until) he wins that legal battle, Albertans will be subject to one pricing plan or the other.

Federal pricing will also be contingent on what happens during the upcoming federal election. Conservative Leader Andrew Scheer has vowed to repeal the federal carbon tax if elected.

What does all this mean at the pump?

Well, no matter who wins the provincial or federal election, you'll likely notice the impact at the pump.

The difference would be felt most keenly by those who drive more often or who drive bigger vehicles unless they opt to change behaviour and scale back or switch to more energy-efficient modes of transportation.

Can't see the chart above? Click here.

The costs we're not considering

But the cost to fill a tank isn't the end of the economic conversation. 

Brendan Frank, a research associate with independent Canadian economics organization Ecofiscal, says the question he's asked the most about carbon taxes is this: if most of the money goes back to consumers through rebates, what's the point?

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"Because high carbon fuels are relatively more expensive, now there's an incentive to substitute to make changes in a way that not only reduces your carbon footprint but reduces the amounts that you pay in carbon prices," Frank says.

"The point of a carbon price is not to raise revenue. It's for people and businesses to find creative ways to avoid paying it."

'These costs are starting to pile up'

Frank says the carbon tax discussion often doesn't take into account the multitude of economic costs related to climate change, such as climbing insurance rates due to increased incidents of severe weather, or lost work hours from people who are absent due to pollution or weather-related illness.

"I'm from Calgary. I was there for the 2013 floods and I remember I was told a flood of that severity would happen once a century, and it came eight years after a flood we were told would happen once every 25 years or so. So these costs are starting to pile up," he says.

"It's kind of hard to wrap your head around. Like, climate change is one massive risk, right? But those risks sort of fan out and they're starting to touch every part of our lives."

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