New fuel regulations will increase price of fuel and decrease GDP: budget watchdog

A customer fills their car with gas in Calgary on June 9, 2022. (Oseremen Irete/CBC - image credit)
A customer fills their car with gas in Calgary on June 9, 2022. (Oseremen Irete/CBC - image credit)

New fuel regulations set to take full effect in 2030 are expected to increase the price of fuel and shrink the size of Canada's economy, according to a new report from Canada's budget watchdog.

The Parliamentary Budget Officer (PBO) released a distributional analysis of the federal government's Clean Fuel Regulations Thursday.

After its release, the report became a lightning rod for federal politicians, with the Conservatives calling the policy a financial burden on families.

The other political parties criticized the PBO because they said the analysis ignores the cost of inaction on climate change.

The Clean Fuel Regulations take effect in July.

It will require producers or importers of gas or diesel to gradually reduce the carbon intensity of the fuels they sell.

By 2030, the carbon intensity of these fuels must fall to 15 per cent below 2016 levels. According to Environment and Climate Change Canada, this will deliver 26 million tonnes of greenhouse gas emissions reductions. It establishes a carbon credit market in which reducing emissions earn credits that can be sold.

B.C., California, Oregon and others have adopted similar regulations.

By increasing the price of carbon-intensive fuels, the government hopes to encourage the production and consumption of cleaner fuels like hydrogen and biofuels.

Once these regulations take full effect, according to figures the PBO obtained from Environment and Climate Change Canada, it will increase the price of gas and diesel by as much as 17 cents per litre.

"It is a significant increase in price due to these clean fuel regulations," Yves Giroux, the Parliamentary Budget Officer, said.

The Canadian economy will also take a hit, the PBO reported, with the regulations decreasing real GDP in 2030 by up to 0.3 per cent or $9 billion.

The PBO estimated that the cost would range from 0.62 per cent of disposable income, or $231, for lower-income households to 0.35 of disposable income, or $1008, for higher income households.

"For most households, it's below one per cent of their income," Giroux said. "It is not a large impact in the grand scheme of things."

"But it is an impact."

Adrian Wyld/The Canadian Press
Adrian Wyld/The Canadian Press

That impact is felt even more in the Prairies and Newfoundland and Labrador, the PBO said. In 2030, the clean fuel regulations will cost the average household in Saskatchewan $1,117 or 0.87 per cent of their disposable income.

But none of these estimates took into account the cost of doing nothing to fight climate change to limit the average increase in global temperatures to 1.5 C.

PBO report flawed: policy researcher

Exceeding 1.5 C means Canada and the world would see the more significant impacts of climate change — more intense storms, heatwaves and wildfires — widely believed to affect people with the lowest incomes disproportionately.

"The report does not paint a complete picture," said Jason Dion, a senior research director with the independent Canadian Climate Institute. "I think it's unfortunate."

Dion said the report compares the clean fuel regulations to a world where Canada does nothing about climate change and faces no consequences for doing so.

The Canadian Climate Institute estimates climate change costs Canada $700 per person.

Dion noted the European Union has brought in a carbon border adjustment or carbon tariff that penalizes countries with weak climate policies.

Conservative leader calls regulations 'Carbon tax 2'

Outside the House of Commons Thursday, Conservative Leader Pierre Poilievre said the regulations will cause significant hardship to families, especially combined with the national carbon price, which will rise to 170 per tonne in 2030.

"[It's] yet another tax on the backs of hardworking Canadians," Poilievre told reporters, calling the clean fuel regulations "carbon tax two."

The Clean Fuel Regulations are not a tax since all the money paid goes directly to oil and gas companies, according to Rachel Samson, vice-president of research at Institute for Research for Public Policy.

"For one thing, the revenue is not going to the government," Samson said. "So I think that rules it out as a tax right away."

Samson also found flaws in the PBO's report, which she described as "misleading" because it uses the highest household cost estimates. She said it also assumes fuel producers won't find low-emissions fuel alternatives and Canadians won't ditch their gas guzzlers for public transit, biking or electric vehicles.

Joining the chorus of criticism, Environment Minister Steven Guilbeault called the PBO modelling "unbalanced" and accused the Conservatives of fearmongering.

"Pierre Poilievre is doing what he does best — scaring Canadians with bumper sticker slogans," Guilbeault said.

WATCH | Environment minister reacts to PBO's analysis of the Clean Fuel Regulations

At a joint news conference Thursday morning calling for stricter financial regulations to kickstart the green transition, MPs from the NDP and the Greens were united in their criticism of the PBO's climate analysis.

They said the PBO had conducted a similar analysis of the federal fuel charge, commonly called the carbon tax.

"The deficiency of their analysis has been a failure to assess the costs of inaction," said Green Party Leader Elizabeth May.

The NDP's Taylor Bachrach said the "soaring" fuel prices Canadians are experiencing aren't because of national climate policies, but are because of the "excess profits" of oil companies.

Giroux acknowledged his report doesn't consider both the costs and benefits of policies in addressing climate change. He added that such an analysis would need to factor in not only what Canada is doing, but what other countries are doing as well.

Giroux's office in an email said Thursday's report was initiated by the PBO and not requested by a parliamentarian.