How much will the carbon tax cost you when driving?

This article was published by the National Energy Board on July 3, 2019.

Pricing greenhouse gas (GHG) pollution is a key component of the pan-Canadian framework for clean growth and climate change; a policy framework established to meet Canada’s commitments to the Paris Agreement.

In June 2018, the Federal government passed the Greenhouse Gas Pollution Pricing Act (GGPPA). Provinces and territories can either develop their own carbon pricing system that meets the federal benchmark or use the federal backstop system, which was officially implemented on 1 April 2019. This means that carbon prices can vary by region.

Carbon pricing increases the cost of GHG-emitting fuels to encourage people to use less of them. In the case of gasoline, one litre emits 1.96 kg of CO₂e. Thus, a carbon price of $20/tonne converts to 3.85 ¢ per litre of gasoline. The ultimate cost of driving also depends on fuel efficiency, distance driven, and fuel costs.

Figure 1 illustrates estimated fuel efficiency for every 2019 gasoline vehicle model available in Canada. It shows a significant difference in fuel efficiency between vehicles depending on highway or city driving.^Footnote1

All else equal, the more efficient a vehicle is, the lower the cost of fuel consumed and carbon price paid per kilometre driven. Figure 2 estimates the cost of the carbon tax for every 100 kilometre driven for each model of gasoline engine vehicle available in Canada in 2019. Various gasoline price scenarios (including fuel costs and other taxes) are provided, given how gasoline prices vary over the course of the year and by region.

The results show that cost of driving varies greatly between vehicles, and that fuel efficiency is an important factor in how much a driver will spend on driving. Assuming a $1.40 per litre gasoline cost, a carbon price of $20 per tonne increases driving costs by 3.3 per cent.

Footnotes:

1. The combined section refers to fuel efficiency when the vehicles are driven 55 per cent of the time in cities and 45 per cent of the time in highways.

Appendix:

The fuel and carbon tax costs ($/100km) were estimated by using Natural Resources Canada’s fuel consumption ratings, which provides data on CO₂intensity. The calculation for the cost of the carbon tax is as follow:

The calculations assume the cars are relying 100 per cent on gasoline and, unless otherwise stated, are driven in city-like routes 55 per cent of the time and in highway-like routes 45 per cent of the time.