STUDY: Estimated Impacts of a $170 Industrial Carbon Price in Alberta and Canada

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$170 per tonne industrial carbon tax by 2030—currently Ottawa’s plan—will cost Canadian workers $1,160 in reduced income and result in 50,000 fewer jobs

By: Ross McKitrick, Elmira Aliakbari, Joel Emes and Milagros Palacios

This study, using a computable general equilibrium model of the Canadian economy, examines the economic implications of increasing Alberta’s and Canada’s industrial carbon price to $170 per tonne by 2030, in line with the current federal mandate.
This policy would impose substantial costs. In Alberta, real GDP could decline by 2.0%, relative to a scenario in which the industrial carbon price does not increase after 2025. This corresponds to about $1,730 per employed person and a decline of more than 10,000 jobs.
At the national level, the economy would shrink by 1.3%, equivalent to about $1,160 per employed person, with a loss of over 50,000 jobs.
The impacts are not evenly distributed across the economy. Energy and energy-intensive sectors in Alberta—including electricity, refined fuels, transportation, and utilities—are projected to experience relatively large declines in output.
Capital earnings decline much more than labour earnings indicating that, despite the loss in real GDP per worker, households are actually shielded in the short run from the worst economic impacts. The large drop in returns to capital, however, can be expected to result in reduced or cancelled investment plans, which will translate into further long-run declines in Canadian living standards.
Policy makers should understand the full range of potential economic impacts of further increases in carbon prices, especially in a context in which major trading partners like the United States and China are not engaging in similarly aggressive GHG control policies.