Choose Wisely: Options and Trade-offs in Recycling Carbon Pricing Revenues

Canada’s EcoFiscal Commission

[Toronto Globe and Mail] …Carbon pricing can cut greenhouse gas emissions in Canada without hurting the economy, as long as the revenue generated is effectively “recycled,” a new report says.

There are many ways to use the money raised by carbon pricing, and each province should do what is right for its own economic circumstances, according to the report released Wednesday by Canada’s Ecofiscal Commission, a think tank of private-sector economists…The money generated by carbon pricing can be substantial…

In figuring out what to do with the money generated, two key issues have to be dealt with initially, the report said. First, it is important to make carbon pricing fair to provincial residents – and especially to ensure poorer people don’t get hit hard from higher energy prices. Second, the system needs to be designed so businesses stay competitive relative to similar operations in other provinces or countries which may not have the same carbon price.

To alleviate those concerns, “revenue recycling” options might involve making direct payments to low-income households, or reducing income-tax rates. Companies affected could get transitional support in the form of free carbon credits, or rebates off their carbon tax…What’s crucial, it said, is that each province take the approach that suits it best. “No single revenue-recycling approach is a clear winner across all dimensions…


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