Impact of carbon pricing on households
Carbon pricing is widely accepted to be regressive in nature i.e. it would adversely impact lower income households more than higher income households. A uniformly applied carbon policy would mean that highest earning Canadians may pay four times more than low income Canadians; however they also earn six times more income indicating that they will be paying a smaller proportion of their income on cost increases relating to carbon pricing.1
The National Roundtable on the Environment and the Economy estimated the impact of a $27/tonne CO2 carbon price on households with different income levels in the absence of recycling of the revenue.
Burden of a $27/tonne of CO2 carbon price on households with different income levels in the absence of revenue recycling.
Note: Note that the figure assumes households make no abatement efforts. In reality, households will respond to the price signal to reduce their costs, and actual expenditures will be less than as illustrated in this figure.
Source: National Roundtable on the Environment and the Economy. Achieving 2050: A carbon pricing policy for Canada.1
Different populations within Canada will experience the effects of carbon pricing to different extents. Rural and Northern Canadians may experience an adverse effect – the average rural household may pay 20% higher in terms of the proportion of their income compared to those in major cities; however, the cost of living is lower in rural areas, potentially moderating the adverse effect.1
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