Industrial Carbon Tax Imposes Significant Economic Burden on Canadians
A comprehensive new analysis from the Fraser Institute reveals the substantial economic costs associated with the planned increases to Canada's Industrial Carbon Tax (ICT). According to the study, the policy will result in a reduction of real GDP by 1.3 percent nationally, translating to an economic cost of approximately $1,160 per person when measured in 2019 dollars.
Employment Impacts and Provincial Disparities
The research indicates that by 2030, Canada's employment will be approximately 50,000 jobs lower than it would be under the 2025 policy status quo. The economic consequences are particularly pronounced in Alberta, where the study projects a 2.0 percent reduction in real GDP and about 10,400 fewer jobs compared to the baseline scenario.
"The economy and labour market continue growing but at a slower rate," notes the study, which compares the economy at 2030 under the proposed ICT increase versus a base case where the consumer carbon tax remains at zero and the ICT stays at its 2025 level.
Policy Context and Recent Changes
The analysis comes as the Carney government maintains its plan to increase the ICT to $170 per tonne by 2030, despite having suspended the consumer carbon tax. The study accounts for two significant recent developments: the elimination of both the consumer carbon tax and annual carbon rebates, and the changing situation in Alberta following the Ottawa-Alberta Memorandum of Understanding signed last year.
Alberta's existing Technology Innovation and Emissions Reduction (TIER) system currently allows firms to choose between paying the provincial charge or buying credits generated in a separate market. However, the understanding with Ottawa contains language suggesting Alberta will need to align its TIER prices with the federal ICT rate.
Methodological Approach
The study marks the debut of the "Fraser Model," a computable general-equilibrium model of the Canadian economy developed specifically to analyze economic policy impacts. The model simulations compare economic outcomes under different policy scenarios, providing what researchers describe as independent quantitative analysis of current Canadian energy and climate policy.
The research shows that the ICT increase will lead to a reduction in real GDP per worker of about 1.1 percent nationally and 1.6 percent in Alberta. In Alberta, this translates to approximately $1,730 per worker in economic losses when measured in 2019 dollars.
Broader Implications
The findings come at a time when Ottawa appears equally concerned about both tight fuel supplies with high prices and abundant fuel with low prices. The government has recently urged a reopening of the Strait of Hormuz to reduce gasoline costs, even as it prepares for the next round of ICT increases.
When the ICT plan was first announced in 2022 as part of the Emissions Reduction Plan, it included no cost analysis. This new study represents an extension of earlier work on the costs of the entire Emissions Reduction Plan, updated to reflect recent policy changes and provincial developments.
