An Open Letter from Economists on Canadian Carbon Pricing

Inflation has come way down, but in order to keep it down and tackle these affordability challenges, we need to look at the root causes. Labour costs and shortages, global conflicts, supply chain issues and climate change are the main drivers of global inflation. Cynics will blame carbon pricing – but the facts don’t support the argument that pricing pollution is a main contributor to inflation. The Bank of Canada confirms that carbon pricing is responsible for less than 0.15% of inflation and over 200 economists wrote a letter to explain both why carbon pricing is so important and how it is impacting our economy.

Here is an excerpt from that Open Letter. Originally Published on ecofiscal.ca March 26th 2024 by Chris Ragan

Read the full Open Letter Here

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As economists from across Canada, we are concerned about the significant threats from climate change. We encourage governments to use economically sensible policies to reduce emissions at a low cost, address Canadians’ affordability concerns, maintain business competitiveness, and support Canada’s transition to a low-carbon economy. Canada’s carbon-pricing policies do all those things.

There is plenty of discussion about carbon pricing in Canada today. Healthy public debate is good, but it should be based on sound evidence and facts. Let’s examine some of the claims made by critics of carbon pricing and compare them with what the evidence shows.

Critics’ Claim #1: Carbon pricing won’t reduce GHG emissions.

What the evidence shows: Not only does carbon pricing reduce emissions, but it does so at a lower cost than other approaches

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Critics’ Claim #2: Carbon pricing drives up the cost of living and is a major cause of inflation.

What the evidence shows: Canadian carbon pricing has a negligible impact on overall inflation.

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Critics’ Claim #3: It makes little sense to have both a carbon price and rebates.

What the evidence shows: The price-and-rebate approach provides an incentive to reduce carbon emissions (due to the price), while maintaining most households’ overall purchasing power (due to the rebate).

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Critics’ Claim #4: Carbon pricing harms Canadian business competitiveness.

What the evidence shows: Canada’s carbon-pricing scheme is designed to help businesses reduce emissions at low cost, while competing in the emerging low-carbon global economy.

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Critics’ Claim #5: Carbon pricing isn’t necessary.

What the evidence shows: Here the critics are right. Canada could abandon carbon pricing and still hit our climate targets by using other types of regulations and subsidies—but it would be much more costly to do so.