In this paper (here) supported by Canadians for Clean Prosperity, we explore the cost impacts of the federal carbon pricing backstop on households in Alberta, Saskatchewan and Ontario.
We assess three revenue sharing scenarios that differentiate the value of carbon proceeds returned to households:
Households receive what they pay;
Households get all proceeds except those from large final emitters under output-based pricing; and,
All carbon proceeds are rebated back to households.
To assess the scenarios, we construct provincial household energy use and GHG profiles for seven income groups accounting for GHG intensity improvements and behavioral responses to carbon prices.
We then estimate the cost impact of the backstop on direct energy use and indirect carbon embodied in consumption. To determine the net carbon cost per household, we then rebate differing carbon proceed amounts under the federal benchmark (a carbon levy and output-based pricing (OBPS) for large emitters). We find that revenue recycling in lump sum fashion to households significantly reduces the cost incidence of the federal backstop. In some cases, households are better off, meaning the cost of the federal backstop is less than the carbon rebates.
Note, we did not assess the macroeconomic impacts of the differing household carbon recycling scenarios. Our expectation is that competitiveness impacts would be somewhat exacerbated when carbon proceeds paid by business are given to households.