Saskatchewan should negotiate higher carbon tax rebate with feds

Case to be made for larger payment, writes Erin Weir.

The war of words over carbon pricing is dominated by calls to “spike the hike” from the April 1 rate increase, “axe the tax” altogether, or at least remove it from home heating.

If the goal is financial relief for Saskatchewan households, a better solution would be to increase the federal rebate in the province — even if “escalate the rebate” isn't quite as catchy.

Canadian carbon pricing applies a levy to emissions from large industrial facilities and another levy to the carbon content of fuels sold to consumers. Ottawa administers both unless and until a province enacts its own version.

With federal agreement, Saskatchewan set up its own pricing for industrial emissions at the end of 2022. The recent provincial budget quietly included $448 million in “Output-based Performance Standards” from retroactively shifting Saskpower's payments from the former federal charge to the new provincial charge.

The utility spent just one per cent of this amount providing discounts to the small minority of Saskatchewan customers who rely on electric heat.

For public relations, Saskpower continues to label emissions charges as “federal carbon tax” even though they now flow into the provincial treasury, saving the government from having to report a larger provincial deficit.

The carbon levy that remains federal is the one on gasoline, natural gas and other fuels sold to consumers. It provides an incentive to burn less fuel. Ottawa rebates the proceeds collected in each province back to its residents. People who reduce fuel use pay less carbon tax, but still receive a full rebate.

Last year, the Parliamentary Budget Officer confirmed that most households receive somewhat more in rebates than they pay in carbon levies. He also noted that reducing carbon emissions slightly reduces economic growth, so forgone income growth will modestly outweigh the current rebate.

A further challenge for Saskatchewan is that most merchandise is transported in through Alberta or Manitoba. Saskatchewan consumers incur the cost of some federal fuel levies that are collected and rebated in other provinces.

There is a plausible case to be made for increasing rebates in Saskatchewan to cover such interprovincial charges.

The federal Department of Finance estimates that federal carbon levies on fuel cost the average household $1,156 in Saskatchewan, $1,056 in Alberta, about $900 in Manitoba, Ontario and Newfoundland, and about $600 in the Maritime provinces for 2024-25.

Meanwhile, the average Canada Carbon Rebate per household is $1,779 in Alberta, $1,505 in Saskatchewan, about $1,200 in Manitoba, Ontario and Newfoundland, and about $800 in the Maritimes.

The average Saskatchewan household will receive $349 more in rebates this year than the federal carbon levy costs. Axing the tax would eliminate this financial benefit along with its incentive to conserve fuel.

Saskatchewan households, which face the highest carbon costs, should arguably receive the highest rebates. If the federal rebate in Saskatchewan were increased to the same level as in Alberta, the average Saskatchewan household would gain $623 more than it pays.

When the federal government exempted heating oil from its carbon levy to curry political favour in other regions, it made sense for Saskatchewan policymakers to seek a parallel exemption for home heating from natural gas.

The provincial government estimates that Saskenergy not collecting the federal levy will save the average family $400.

Unfortunately, this saving could easily be lost if the federal government ultimately makes Saskatchewan pay the lawful amount or cuts back rebates. In a provincial election year, the Saskatchewan Party government welcomes this standoff with Ottawa.

If a resolution were desired, a good approach would be to negotiate a larger federal rebate in Saskatchewan. It could be justified with reference to interprovincial transport or to the higher rebate next door in Alberta.

By boosting the rebate, the federal government could compensate Saskatchewan people who rely more than most Canadians on fossil fuels without further eroding its comprehensive carbon price and the incentive to conserve these fuels.