We are exploring approaches to reducing the energy burden where it is highest in Canada. There is no silver bullet, so we are looking at a series of incremental steps that can be taken. Last week we suggested that sales tax should not apply to utility bills.
Solution: Remove Carbon Tax from Electricity
The Federal government has set ambitious decarbonization goals, aiming to both decarbonize the electric grid—already 85% clean nationally—and advance electrification. However, the current approach to applying carbon tax to electric generation does not advance that agenda.
The carbon tax is intended to reward consumers for choosing lower-carbon options. For example, a car owner may decide that it is cheaper to move to an electric vehicle when carbon pricing on gasoline puts pressure on their finances. But if that car owner lives in a province that does not have access to existing, local hydro resources, they are still paying (indirectly) a carbon tax on their electricity because it is applied to electric generation.
The incentives are particularly upside down in Atlantic Canada. While the government has provided a carbon tax holiday on home heating oil to alleviate financial strain on families, many consumers in Atlantic Canada could greatly benefit from transitioning off oil to more efficient heat pumps. However, already high electricity prices are compounded by the carbon tax, which in turn diminishes the incentive to make the investment.
Furthermore, the carbon tax on generation does not incentivize electric utilities to decarbonize; they are already on that path. Instead, the cost of the carbon tax is passed on to consumers as part of the cost of fuel. It neither serves as a carrot nor a stick for electric utilities and certainly does not encourage consumer electrification.
Canada already has effective tools and policies requiring utilities to decarbonize, including stricter emissions standards and obligations to retire coal plants. The draft Clean Electricity Regulations (which are also problematic) would take the obligation to decarbonize generation even further.
The impact on households in provinces that can least afford higher electricity rates is significant. For example, in Saskatchewan, the carbon charge comprises approximately 5% of a residential electricity bill. Our rough calculations indicate similar impacts in Nova Scotia and Alberta. In New Brunswick, where the generation mix is less carbon-intensive, the carbon charge currently comprises approximately 2% of a residential electricity bill.
There are better ways to encourage the decarbonization of the electric grid without increasing the burden on electric customers in provinces that are already bearing the burden of the energy transition. These same customers are already facing high energy costs, and the carbon tax only exacerbates their financial strain.
