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Experts, feds slam report saying clean fuel regulation will hit poor Canadians hardest

Parliamentary Budget Officer report finds federal regulations to reduce the carbon pollution from gasoline and diesel will hit poorer Canadians harder, but experts say the analysis is flawed.
man pumps gas
The Parliamentary Budget Officer has found federal Clean Fuel Regulations would hit lower income households hardest in Canada.

Federal regulations to reduce the carbon pollution from gasoline and diesel will disproportionately hit lower income Canadians, an analysis from the Parliamentary Budget Officer (PBO) has found.

The PBO report, released Thursday, found the Clean Fuel Regulations (CFR) were “broadly regressive” and would force lower income Canadians to shoulder a larger share of their disposable income compared to higher income earners.

By 2030, household costs ranged from 0.62 per cent of disposable income, or $231, for lower income individuals and families, to 0.35 per cent of disposable income, or $1,008, for those earning higher incomes.

Set to come into effect July 1, 2023, the Clean Fuel Regulations will require producers and importers to reduce the carbon intensity of gasoline and diesel every year, so that by 2030, greenhouse gases emitted by the fuels will be 15 per cent lower than they were in 2016.

Environment and Climate Change Canada estimates the regulations will prevent the release of 26 million tonnes of greenhouse gas emissions in 2030, nearly four per cent of the carbon pollution Canada produced in 2021.

To reduce the carbon intensity of fuels, fossil fuel companies will have to find ways to make their operations more efficient. In some cases, that will mean upgrading processing equipment; in others, it will require offering more biofuels.

The regulations will cost between $22.6 billion and $46.6 billion for refineries and other fuel suppliers to comply, or an average of about $151 per tonne of emissions reduced, according to a 2022 impact assessment. Those costs are expected to be passed on to both investors and consumers when they go to fill up at the pump.

The impact will shave $9 billion off of Canada's GDP, and hike gasoline prices between six and 13 cents a litre in 2030 when the full scope of the regulations is in effect, the impact assessment found.

Kathryn Harrison, a political scientist at the University of British Columbia researching climate policy, said the report raises important questions on the impacts reducing emissions will have on lower income families.

“We kind of pretended in Canada that acting on climate change, that reducing our greenhouse gas emissions wouldn't cost us anything,” said Harrison.

“And the reality is that reducing Canada's greenhouse gas emissions is not going to be free. It's going to cost money.”

Household costs vary by province, finds PBO

According to the PBO report, how much individual households will pay will depend on the fossil fuel intensity of the economies they live in.

By 2030, the PBO found the Clean Fuel Regulations will cost the average individual household the most in Saskatchewan, where it will consume up to 0.87 per cent of disposable income, or $1,117.

Albertans will see cost to their disposable income rise as high as 0.80 per cent, or $1,157, by 2030, while Newfoundland and Labrador would pay up to 0.80 per cent, or $850, of their disposable income, according to the PBO report.

Relative to disposable income, the average B.C. household will see the lowest impact in the country — a third of Saskatchewan — with a maximum added cost of $384 by 2030, according to the PBO.

The “relatively muted impact” on B.C.’s GDP will be only slightly higher in Ontario and Quebec, where the average resident is expected to face respective annual costs of $495 and $436 by the end of the decade.

Describing the police as “carbon tax two,” Conservative Opposition Leader Pierre Poilievre claimed rebates under any other policy wouldn’t come close to offsetting the cost of the Clean Fuel Regulations.

When asked what his plan was, Poilievre said he would avoid raising the cost of “traditional energy” and lower the cost of carbon-free alternatives by speeding up approval of tidal energy, nuclear and hydro electricity.

“Technology, not taxes,” he said.

In a statement, Environment Minister Steven Guilbeault defended the Clean Fuel Regulations, saying they were modelled on similar policies already in place in B.C. and California, where they have already been shown to spur growth in clean technologies that can supply cleaner fuels.

Guilbeault described the PBO analysis as an “unbalanced modelling approach” that does not account for new technologies.

“That is not a reasonable assumption, especially given the $120 billion clean economy investments our government has made in Budget 2023 alone,” said Guilbeault.

“And the PBO also fails to recognize the cost of climate change to Canadians, like extreme weather. We know that every ton of carbon dioxide costs our society $261 from the costs of climate change. These costs are not taken into account.”

The minister said the regulations are designed to ensure there is “no immediate impact on fuel prices.” How prices will go up as we approach 2030 “will depend on the choices of oil refiners” to invest in clean production that produces affordable fuels.

PBO report ‘muddies the waters’ of climate policy, says expert

Harrison said there's always a risk a policy on fuel will hit low-income families hardest because they often spend more of their income on energy.

But she also cautioned the numbers provided by the PBO are problematic because they only offer the maximum costs for Canadians instead of a best estimate.

Harrison said the Clean Fuel Regulations should not be seen in isolation from other federal climate policies that could off-set the ultimate cost to Canadians.

“It's not realistic,” she said. “The carbon pricing policy is already putting money into the pockets of lower income households.”

The PBO report acknowledged it did not account for either the benefits of reducing Canada’s greenhouse gas emissions, nor the economic costs that come with climate change.

“Canada’s own emissions are not large enough to materially impact climate change and therefore their reduction would not materially affect the Canadian economy,” states the report.

That claim — that Canada’s climate impact on the world was too small to matter — prompted exasperation among some experts.

Jason Dion, senior research director at the Canadian Climate Institute, said Canada has played an out-sized role as a historical carbon emitter and remains among the highest per capita sources of greenhouse gases in the world.

“Every megaton matters,” he said. “If you added up all the countries whose emissions are smaller than Canada's, it adds up to more than China’s.

“So the idea that small countries with you know relatively small emissions as an overall share are irrelevant? It’s just totally inaccurate.”

By comparing the maximum households could pay under the CFR with a world where Canada does nothing to address climate change, Dion says the PBO “once again muddies the waters” around effective climate policy.

Such an approach ignores the direct damage from climate change, and hides the economic upside of developing clean energy, the health benefits of reducing air pollution and the avoided costs of trade repercussions from not acting, he said.

“When you compare [the impacts of the CFR] to this alternative, hypothetical world, where we do nothing, and it doesn't matter, and there's no consequences, then yeah, it shows us a cost,” Dion said.

“That was bad accounting.”

With files from the Canadian Press

Editor's Note: This story has been updated with comments from Conservative opposition leader Pierre Poilievre.