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How can rebates be more than household carbon-tax costs for everyone?

A scenario on the other extreme assumes that households only get a refund from the taxes they pay themselves — in their electricity and heating bills, gasoline and embedded in the goods and services they buy — but their refund does not include transfers from other carbon taxes paid by businesses (such as those embedded in exports). This results in the smallest rebates for households. A third scenario is somewhere in the middle, but I’ll stick with discussing the two scenarios on either extreme.

Obviously, there is a significant difference in impacts between the two scenarios. Under the first scenario, with transfers coming from businesses, Ontario households, for example, receive on average $866 in annual rebates. Under the other extreme, where other business carbon taxes aren’t included in the refund to households, rebates shrink by a third, to $555.

The carbon costs per capita — which are assumed to be reduced by abatements made by families making “investments” in energy efficiency to avoid paying higher taxes — are then estimated for each income group, taking into account direct and indirect costs imbedded in consumer prices. And under the first, “all revenue” rebate assumption, every income group is better off.

However, when rebates are only based on what households pay directly or indirectly in carbon taxes, the results actually show that lower-income groups win — but higher-income groups lose. For example, in Ontario, all households earning below $80,000 in income come out ahead with bigger rebates than they pay in taxes. Everyone earning more than $80,000 pays more in carbon taxes than they get in rebates. Given that the median household income in Ontario is just shy of $80,000, about half of the province loses money on the carbon tax. It’s roughly the same case in Alberta and Saskatchewan.