The Most Important Climate Change Policy That No One’s Talking About

The time is right for the Canada Revenue Agency to invest in technology that would make the carbon rebate a direct payment.

Originally published by The Hill Times

On March 25, a few weeks into the COVID-19 crisis, the government made an announcement that left most analysts wondering if it had bitten off more than it could chew.

Within 10 days, according to Prime Minister Justin Trudeau, the government would have a new system up and running to issue direct payments to millions of Canadians. This was not your typical government program. And yet, when the Canada Emergency Response Benefit launched on April 6, the system worked as planned. It was an impressive counterpoint to the well-worn narrative that governments are slow and inefficient.  

This newfound government nimbleness should now be applied to another important program that pays money to Canadians: the carbon tax and rebate.   

A carbon tax and rebate system is one of the best policy tools we have to reduce greenhouse gas emissions and avoid the worst impacts of climate change, while also protecting the economy. Across the political spectrum, economists are in agreement on this point. Poll after poll show Canadians expect their governments to take serious action on climate—but they’re also concerned about affordability.  

That’s where the rebate comes in—every household that pays the carbon tax gets a rebate. For example, a family of four in Ontario will receive $448 in 2020, an amount that will increase in future years as the price of carbon also rises. Most families’ rebates will exceed the extra costs they pay in carbon tax. The rebate helps Canadians afford climate action, and over time, households could invest their rebates in things that help reduce carbon emissions—say caulking windows, or a smart thermostat—that also help save them money.

The problem with the program is the rebate is currently paid as a refundable income tax credit. Not surprisingly, our polling has found that only a third of Ontarians are even aware that they receive the rebate. 

One of the reasons the government chose a tax credit was that issuing payments via cheque or direct deposit would require a new IT system that would have been complex and time-consuming to set up. But times have changed—the civil service has demonstrated an ability to quickly deliver new programs, and the Canada Revenue Agency is also upgrading its entire IT platform.  

The time is right for the CRA to invest in technology that would make the carbon rebate a direct payment. It even has a precedent to follow since the payment system would be very similar to the GST/HST credit, presumably lowering the complexity and risk. 

Sending money directly to Canadians in a way they can clearly see will build support for the most effective climate policy tool we have, thereby increasing the chances of the program enduring and growing over the long term. Polling we commissioned last year showed that half of those who oppose a carbon tax immediately change their minds when told the money goes back to households and businesses. With that one fact, support for a carbon tax and rebate climbs above 70 per cent. 

More than just increasing public support, a direct payment will help achieve the goals of Canada’s carbon-pricing policy. A study of another direct-payment benefit program administered by the CRA, the Canada Child Benefit, found that recipients used the money in ways consistent with the program’s goals—increasing family expenditures on food, child care, education, and health. There’s every reason to believe that discrete carbon tax rebate payments will produce the same results, encouraging people to mentally allocate their rebate money to reducing their carbon footprints.

During difficult economic times, like now, it’s likely that most families will allocate their carbon rebate money to urgent needs, debt repayment, or savings. But a recurring, clearly identified payment would increase the likelihood that Canadians will think about the actions they might take—both small and large—that could decrease the amount of carbon tax they pay out, and increase the rebate money they retain. As the rebate rises over time, a periodic payment also increases the chances that households will go on to make ever more significant investments in reducing their carbon emissions. 

Switching to direct payments, if issued quarterly, could also save the government the significant interest associated with advancing a full year’s worth of rebate money. In 2021, we estimate that the savings could be as much as $38-million dollars. 

Building public support for the most effective tool we have to address climate change, encouraging Canadians to fulfil the intent of the policy and reduce their emissions, and saving money—these are all excellent reasons to switch to quarterly rebate payments. It’s an upgrade that could unlock the full power of the carbon tax and rebate and help us reach the ultimate goal of net zero emissions by 2050.

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