Parliamentary Budget Officer Yves Giroux waits to appear before a Senate committee in Ottawa, on June 3.Spencer Colby/The Canadian Press
Nearly six months after acknowledging his office made a mistake with its previous forecasts on the impact of the federal fuel charge, Parliamentary Budget Officer Yves Giroux has released an updated analysis that shows Canadian households will still be worse off on average in broad economic terms – but not by as much as previously estimated.
The PBO has previously released reports that aim to estimate both the direct financial impact of the federal government’s fuel charge on households by income quintiles – which divide the population 15 and older into five groups of equal size – and the broader, indirect economic impact, also by quintile.
Thursday’s updated report maintains the PBO’s view that most Canadian households will receive more money back in rebates than they will pay in federal fuel charge under the government’s carbon-pricing policy.
However, in a second analysis, it says Canadian households on average will pay more when indirect economic factors such as employment loss and investment income are considered. The report shows that lower-income Canadians will be better off, while higher-income Canadians will pay more.
“The main finding from our updated analysis is, as we expected, consistent with our previous reports. When only the fiscal impact of the fuel charge is considered, the average household across most income quintiles will see a net gain. However, when both the fiscal and economic impacts of the fuel charge are considered, the average household across most income quintiles will face a net cost,” Mr. Giroux said in a statement.
Thursday’s PBO report, which updates reports published in 2022 and 2023, focused on the impact of the federal fuel charge, which is described by some as a carbon tax. The fuel charge program is paired with quarterly rebates and is meant to create an incentive for consumers and businesses to choose less carbon-intensive options, such as switching to a more fuel-efficient vehicle.
It is separate from the industrial carbon-pricing system, which applies to large emitters.
The PBO’s earlier analysis said the fuel charge would reduce real GDP by 1.3 per cent in 2030, when broader economic impacts were considered. The comparable figure is 0.9 per cent in Thursday’s report, which swaps out the PBO’s earlier economic modelling in order to rely on recently provided data compiled by Environment and Climate Change Canada.
The PBO reports on carbon pricing are frequently quoted by political parties in the highly charged debate over climate policy. Liberal MPs tend to highlight the PBO’s direct fiscal analysis report, which shows most Canadian households will be better off, while the Official Opposition Conservatives regularly quote the PBO’s finding that Canadian households will be worse off on average when broader economic factors are considered.
Conservative Leader Pierre Poilievre has made “axe the tax” a central slogan of his party’s political messaging, but he has not proposed an alternative climate plan. He has also not said whether a Conservative government would keep the industrial carbon-pricing system.
He declared victory after the release of Thursday’s report.
“The Parliamentary Budget Officer released another report today on the carbon tax, and that report confirmed everything I’ve been saying about this horrible tax, this rip-off,” he told reporters at a news conference in Toronto.
Environment Minister Steven Guilbeault described the report as “an important correction,” but focused on the PBO’s direct impact analysis.
“It clears the air on Pierre Poilievre’s big lie and shows that carbon pricing is the most cost-effective way to fight climate change,” he said in a statement. “The PBO report confirms that the vast majority of Canadians get back more through the Canada Carbon Rebate than they pay, while it also acknowledges that the costs of climate change and the benefits of carbon pricing are not accounted for in this report.”
The federal government has set a national minimum benchmark for both consumer and industrial emissions. Provinces and territories can rely on a federal system or use their own programs, provided they meet the national benchmark. Only British Columbia and Quebec currently have their own programs.
The federal national price on carbon rose to $80 a tonne in 2024 from $65 the previous year. It is scheduled to increase each year, reaching $170 by 2030. The PBO analysis focuses on the projected impacts in the 2030-31 fiscal year.
The PBO quietly posted a note on April 17, 2024, stating that a review had found data issues with its earlier analysis. The problem was that its modelling had unintentionally compared the impact of the fuel charge to a scenario in which neither the fuel charge nor the industrial carbon price existed. The PBO had not meant to include the industrial carbon price in that analysis.
The update was not widely noticed until several weeks later, and Mr. Giroux faced criticism from some MPs for not better highlighting the change.
The PBO said at the time that a review was under way and an updated analysis would be published in the fall. Thursday’s report is that update.
The PBO says estimates from Environment and Climate Change Canada suggest that large-emitter trading systems will be responsible for most of the greenhouse gas emission reductions from carbon pricing in Canada.
With a report from Jeff Gray in Toronto