Canada: New Year, New Carbon Costs: The Implications Of The Carbon Levy

Last Updated: February 7 2017
Article by Sarah R. Levine

On January 1, 2017, Albertans not only welcomed in the New Year, they also welcomed increased prices on everyday fuels such as gasoline and natural gas, as the Provincial government's controversial carbon levy officially came into force. Some Albertans also welcomed the first carbon tax rebate of the year into their bank accounts.

Alberta's carbon levy currently charges $20 per tonne of carbon dioxide emissions, which will increase to $30 per tonne in 2018. These changes are comparable to the nearly decade-old carbon tax in British Columbia, and are within the parameters of the carbon-pricing plan that the federal government requires each province to implement by 20181. However, Alberta's new carbon levy brings with it some issues for Albertans.

So what are the actual implications of the carbon levy now that it has come into force?  

Effect on Albertans

The perceived negative effects of the carbon levy on individual Albertans has become the subject of some controversy. While there are indeed increased prices on diesel, gasoline, natural gas and propane, some of the prices that Albertans will be paying will still be low relative to years' past, and this is before the rebates allocated to approximately two-thirds of Albertans are taken into account. For instance, despite the carbon levy increasing gasoline prices in January by 4.49¢ per litre, the ever-volatile pricing of this commodity will still be lower, on average, than what Albertans were paying  in 2013 and 2014 . The downward trend in pricing is further evident in natural gas pricing, with  2016 prices in Alberta being at their lowest point since 2012. As such, it appears that fluctuations in the prices of affected commodities, and not the carbon levy, will have a greater effect on individual Albertans.

As noted above, approximately two-thirds of Albertans will receive a rebate. Individuals making less than $47,500 will get a rebate of $200 this year.  Couples with two children who earn $101,500 or less will receive a $360 rebate. The Alberta government states that rebates are provided to lower and middle-income Albertans to offset the costs associated with the carbon levy. Eligible Albertans  already received their first rebate payment at the start of the year. In addition to the rebates to some Albertans, the corporate income tax rate on small businesses was reduced by one-third on January 1, 2017, to 2% from 3%.

Of course, the extent to which this tax break assists small businesses will depend entirely upon their profitability, how many input costs they have that are exposed to carbon taxes, and how much carbon-based fuel, such as gasoline, diesel, or propane, they consume.

Effect on Industry

As we outlined in our previous article on the release of the Climate Leadership Regulation, there are several fuels exempt from the carbon levy which are frequently used in industrial processes. For instance, fuel sold for export, fuel used in industrial processes but not combusted, natural gas produced and consumed on site by conventional oil and gas producers (until January 1, 2023), and heating fuels used on sites subject to the Specified Gas Emitters Regulations ("SGER") are exempt from the levy. Large Industrial Emitters will continue to be subject to the SGER framework until the end of 2017, when the province will transition to an output-based allocation approach. Under SGER, facilities that emit 100,000 tonnes or more of greenhouse gas emissions are required to annually reduce their site-specific emissions intensity by 20% as of the start of this year. On-site combustion in conventional oil and gas will be subject to the levy starting January 1, 2023.

What Does the Future of the Carbon Levy Hold?
So what is the end goal of this controversial carbon levy? The Alberta Government has set out ambitious goals, not only in encouraging more emissions-efficient behavior, but in spearheading an energy-efficient economy for Albertans. This new approach is intended to generate energy funding that will be recycled back into the economy. Over the next five years, the stated expectation is for carbon pricing  to raise $9.6 billion, all of which is  to be reinvested in the economy or rebated to Albertans. Specifically, the government projects the following reinvestment:

$6.2 billion will help diversify our energy industry and create new jobs:

$3.4 billion for large scale renewable energy, bioenergy and technology

$2.2 billion for green infrastructure like public transit

$645 million for Energy Efficiency Alberta, a new provincial agency that will support energy efficiency programs and services for homes and businesses

$3.4 billion will help households, businesses and communities adjust to the carbon levy:

$2.3 billion for carbon rebates to help low- and middle-income families

$865 million to pay for a cut in the small business tax rate from 3% to 2%

$195 million to assist coal communities, Indigenous communities and others transition to a cleaner economy

Funds collected from the levy will also be used to assist in the Provincial Government's goal of phasing-out emissions from coal-generated electricity by 2030 and replacing that capacity with electricity produced by renewable sources and natural gas. The Provincial Government has set a target of 30% renewable electricity by 2030. Additional small-scale renewable energy programs include: the Alberta Indigenous Solar Program, the Alberta Municipal Solar Program, and the On-Farm Solar Program. The Minister of Environment and Parks has estimated that at least $10.5 billion in new investment will flow into the provincial economy by 2030, bringing with it an estimated 7,200 new jobs for Albertans as projects are built. The Provincial Government has also committed to unveil a new energy efficiency program in the spring, but the details about the program remain unknown.

Given the current state of the economy, the effects of the carbon levy compared to historical prices of the everyday fuels that are now being taxed might not be as noticeable, at least for the immediate future. Furthermore, the rebate that some Albertans have begun to receive, coupled with some exemptions for fuels used in industrial processes, may ameliorate some public concerns. All of this, however, remains to be seen, as does whether the estimated $9.6 billion that will be raised by the levy will actually be raised, and if it is, whether those funds will help diversify Alberta's economy and make it a leader in energy efficiency. 


1. Prime Minister Trudeau proposes that carbon-pricing begin at a minimum of $10 per tonne in 2018, rising by $10 each year to reach $50 per tonne by 2022.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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