Absent any mitigation policies, carbon taxes and emissions trading schemes are inherently regressive, meaning that they disproportionately impact households with lower incomes. Policy-makers must carefully design carbon pricing policies with fairness in mind so that they do not exacerbate existing inequality stemming from broader social disadvantages such as race, socio-economic status, and community remoteness. The greatest determinant of the fairness of a carbon pricing policy is the choice of how revenues are spent. This Policy Brief. Carbon Pricing and Fairness creates a framework for analyzing the fairness of a carbon pricing policy, and uses the British Columbia carbon tax as an example of its application.
Key Messages:
- A carbon pricing policy, in the form of a carbon tax or emissions trading system (ETS), is a critical tool for transitioning Canada to a low-carbon economy. However, a key concern for policy-makers is how to manage the distribution of costs at the sectoral, regional and household levels. Absent any mitigation policies, carbon taxes and emissions trading schemes are inherently regressive, meaning that they disproportionately impact households with lower incomes.
- Both carbon taxes and emissions trading systems have the potential to be designed fairly; but at the same time, each instrument also has features that may increase its potential to impose disproportionate burdens upon vulnerable groups. Policy-makers must carefully design policies with fairness in mind so that they do not exacerbate existing inequality stemming from broader social disadvantages such as race, socioeconomic status, and community remoteness.
- At the household level, a key concern for policy-makers is fairness. While fairness is a broad term that can encompass many objectives, it clearly requires that a carbon pricing policy not place a disproportionate burden on low-income individuals and communities. Low-income individuals are more vulnerable to the physical impacts of climate change, though they have a substantially lower carbon footprint than those with higher incomes. They must not bear a disproportionately greater share of the costs of a carbon pricing policy.
- The greatest determinant of the fairness of a carbon pricing policy (which is designed to raise the prices of carbon-intensive goods and services) is the choice of how revenues are spent.
