Carbon Tax Costs in New Brunswick
What are potential carbon tax costs in New Brunswick? Of course, the answer to this question depends on the policy proposal. For example, the current New Brunswick plan redirects a portion of the provincial fuel tax to a Climate Change Fund and requires large emitting facilities in the province to participate in the federal output-based pricing system. It exempts natural gas used for heating, small industrial emitters, and agricultural, marine and aviation fuels. Environment and Climate Change Minister Catherine McKenna has indicated redirecting the fuel tax is insufficient, meaning the federal government would require increases in the fuel tax corresponding to increases in the pan-Canadian carbon price. In addition, in other research of mine with Sarah Dobson and Brendan Boyd we find the New Brunswick Liberals’ plan is below the minimum federal threshold, suggesting the federal government would place a tax on natural gas used for heating as well.
New Brunswick Progressive Conservative Leader Blaine Higgs is suggesting a 12 cent per litre carbon tax on gasoline would cost a New Brunswick family $1200 per year. (Twelve cents per litre is roughly equivalent to a $50 per tonne carbon tax on gasoline.) Taking Mr. Higgs’ comment literally suggests he is only referring to costs from gasoline use, and not potential carbon tax costs from other household fossil fuel use. On Twitter, the PCs clarified their estimate to mean that the gas price “will go up 12 cents and overall the cost of living (including extra costs on gas) will increase to a total of $1200 per family. Added gas costs is a part of that $1200.”
A curious New Brunswicker emailed me last week, asking about potential carbon tax costs. Their curiosity was piqued as this number is inconsistent with my previous estimates of carbon tax costs, which suggest at $50 per tonne, the average New Brunswick household would face total carbon costs of $964, including home heating, use of gasoline and diesel, electricity, and indirect costs. (I produced these estimates at the request of the Senate, following my testimony to the Standing Committee on Energy, the Environment and Natural Resources. For more on my methodology, see this blog post.)
This discrepancy was enough to make me go “hmm” and want to investigate further.
First, let’s think about the $1200 estimate. At $50 per tonne, this implies household emissions of 24 tonnes. Is this reasonable? Brett Dolter, Kent Fellows and I are working on updating my previous calculations using 2015 data about household energy use. Our preliminary estimate for New Brunswick is the average household emits approximately 10.5 tonnes annually, corresponding to a cost of $525 at $50 per tonne. (Our estimates for average household emissions from personal transportation are just 5.5 tonnes.) That assumes the price is on all combustion emissions, including those from electricity use. It doesn’t include indirect costs (the carbon tax making goods and services more expensive). Including indirect costs could bring the cost estimates close to $1200, but this requires some fairly strict assumptions (all emissions are priced and all costs are passed on to households).
As a caveat, we calculated emissions for the average household. So 24 tonnes per year for a family or household isn’t out of the realm of possibility, but is certainly high.
However, most people don’t think about the tonnes of emissions they produce. A more intuitive way to think about the reasonableness of the $1200 cost estimate is to compare it to potential energy use and behavior. If we just think about road transportation, at 12 c/L, $1200 in costs would mean a household consumes 10,000 litres of gasoline annually. The Comprehensive Energy Use Database (CEUD) assumes that New Brunswickers travel 14,996 km per year and cars have a fuel efficiency of 7.2 L/100 km, which corresponds to just 1,079 litres. Suppose we decrease the fuel efficiency to 20 L/100 km (way higher than the Canadian average); that still only adds up to costs of $360 per year. In order to consume 10,000 litres at a fuel efficiency of 7.2 L/100 km, a household would have to drive approximately 138,900 km per year, and 50,000 km at a fuel efficiency of 20 L/100 km.
To me, this is puzzling. But can I replicate the $1200 figure?
One way the PCs might have arrived at their $1200 cost estimate is by using transportation emissions. New Brunswick’s transportation emissions in 2016 were 4.44 million tonnes (this is from Environment and Climate Change Canada’s National Inventory Report). At $50 per tonne, that’s a cost of $222 million. If we divide $222 million by the population of New Brunswick (747,101; from the 2016 Census), the per-person cost is $297. Assuming a family of four, that’s $1188. This could be how they came up with the $1200 estimate. However, transportation emissions include domestic aviation, road transportation (including freight), railways, domestic navigation (boats), off-road vehicle use, and pipelines. Essentially, it’s not a reasonable way to estimate the costs — not all transportation emissions are subject to the gas tax, and not all of firms’ costs from the increase would be passed on to households.
I tried several other ways to back out $1200 in costs, including dividing total emissions by the number of households, dividing total emissions by population, dividing total combustion emissions by household and population, and dividing transportation emissions by the number of households. None of these alternatives yielded costs close to $1200 for a family. (And they’re also all incorrect ways to calculate potential costs, incidentally.)
So what do we conclude from this? If the Progressive Conservative estimates are based on a 12 cents per litre gas tax, to me that means they made a math error (using 10,000 litres instead of 1,000), or they used inflated assumptions about driving habits or average vehicle fuel efficiency. The other explanation is they used the wrong emissions data to calculate the costs.
This is unfortunate. Mistakes happen, and as I’ve demonstrated, there are a lot of ways to incorrectly calculate the costs associated with carbon taxes. What’s worse about this situation is that New Brunswickers are being presented with incorrect information during an election period.
An additional issue is that potential costs are not the end of the story. A carbon tax raises revenue, and there are many ways governments can use these revenues to lower the burden on households and firms. In my work with Brett Dolter and Kent Fellows, we find that the average New Brunswick household would pay at most $525 (direct costs), which breaks down as $265 on gasoline or diesel, $96 on household heating, and $164 on electricity. In this case, we would also expect carbon pricing to raise $166 million in revenue from households, assuming no behavioural change in response to the tax. Our paper looks at ways this revenue could be recycled back to households. With $166 million in revenue, the government could give a per-person rebate of $222, or lower the provincial portion of the HST from 10% to 9% (lost revenues of $105 million) or 8% (lost revenues of $210 million). Stay tuned for our complete analysis.