The governments decision on carbon price has far-reaching consequences to the consumers. A lowering of the carbon price of carbon is beneficial to consumers. Lower carbon price also encourages a higher consumption of carbon. However, an increase in the price of carbon has a negative implication on the consumers. Raising the price of carbon might discourage people from consuming of carbon products. Even those who might not stop consumption would reduce their consumption. However, this will depend a lot on the carbon price the government imposes on carbon-based products.
Encouraging Energy Efficiency: Make Gasoline, Heating and Power More Expensive.
As the debate about federal policy on carbon price gets intense, it pays to assess its impact on the consumers. The governments policy pertaining carbon price is aimed at changing peoples behavior. The governments overall aim is to encourage people to consume less fuel. The government aims to achieve this by raising the price of carbon-intensive products (Johnson). Top on the list of the most carbon-intensive products is non-renewable energy used to heat homes and fuel used to power automotive vehicles. By raising the price of heating as well as for automotive fuel, the government would encourage people to start using less fuel in not only their vehicles but also to heat their homes. Using less fuel also imply that the consumers will spend less to purchase on fuels. One of the most unnoticed impacts is the rise in the price of certain items that people hardly think about them. This is because, often, such products are usually transported by using diesel-powered trucks. Previous studies suggest that an addition of an equivalent value of $30 for every ton of carbon price results in the addition of taxes which can range between 6% of gasoline to greater than 100% for coal. However, this depends largely on the carbon intensity of the fuel. With a projected $50 for every ton cost in approx. The next six years, there will be a proportional increase in tax. Practically, the impact of the carbon price increase is evident from provinces which as implemented this carbon price such as British Columbia (2008), Quebec (2011), and Alberta which is in the course of imposing a carbon price.
Carbon Tax and Pump Price
A study of the price pumps on various provinces reveals a lot of how the impact of the carbon price has on the overall tax. One example where carbon tax has been added to the pump price is the case of British Columbia where for every liter the tax is valued at 6.67 cents. This is the second most expensive pump price in the whole of Canada coming after Newfoundland and also Labrador (Johnson). The addition of 6.67 cents to the pump price is a result of a carbon price of $30 per ton of tax that is going to be fully implemented in the year 2018. The gasoline tax, however, will also be approximately the same. A projected carbon tax of $50 for every ton will translate to an increase of 11 cents per liter of the pump price. The case will be different in the province of Quebec because it has its unique cap-and-trade system. But currently, anecdotal evidence suggest that the pump price tax is approximately 6 cents.
Carbon Price and Home Heating
The carbon price has also been found to have impacts on the way people heat and power their homes. The amount of heating costs expected to go up with the implementation of the carbon price will be dependent on factors such as how one heats up home. For circumstance where hydropower energy is used to heat homes, the increase in carbon price has an effect on the price increase (Johnson). However, if natural gas is used for domestic heating, the carbon price will have an impact. One province that will be largely affected is Alberta where a large percentage of domestic home heating employ natural gas. In October, the consumers of natural gas in Alberta were charged $2.66 per gigajoule while in British Columbia it was $1.49 per gigajoule. Research in Nova Scotia has shown that a carbon tax of $30 per ton would result in an additional 8.4 cents for every liter of oil used for heating. A carbon tax of $50 per ton would result in an increase of the carbon price by up to 66%. However, when it comes to the impact on the costs of electricity, the price increase will depend a lot on the nature of the energy mix prevailing in the province. Those who use mainly renewable fuels will be least affected, but those consumers of coal are likely to be largely affected (Johnson).
Carbon Price Low-income Families
The issue of the carbon tax and low families has been a subject of debate. Available evidence suggests that the carbon tax measures disproportionately hit the low-income families and many provinces are in the process of offsetting the pain (Johnson). In Alberta, families with a household income of not more than $95,000 have been marked as candidates for the rebate. However, in British Columbia, the threshold is lower, and payments will begin with income that is over $38,000 for every household.
Overall, the whole idea or point underlying the carbon price is raised certain costs as measures used to influences behavioral patterns of consumption. As the debate continues. There is a need to remember low-income households.
Summary of Comments
The governments policy on carbon price has elicited divergent reactions from the members of the public. This is evident from the comments made by many people after they read the post about the carbon price. Some people think the governments policy would have no impact on peoples behavior. Many people believe that the government wanted to raise its revenue because people will not change their behaviors. On the other hand, there are some who are of the view that the policy will help the government to contain peoples behavior with regards to the fuel consumption. Those who agree with this view content that there is no another effective way to control people consumption behavior better than the price increase. There are those who take the discussion of the price policy. One blogger argued that peoples behavior need not be restricted in the first place. According to the blogger, signs of global warming were evident even before the oil era. Some also pointed out that the move will negatively affect the Canadian taxpayer who is already burdened. Some who agrees with this view suggest that the price increase would cause behavioral change among the people.
Carbon Intensive Products
Two of the most carbon-intensive products are coal, gasoline, diesel, natural gas, heavy duty oil, liquefied petroleum gas, and peat.
From Fig.1, it can be shown that petroleum products are relatively inelastic on account price because oil has limited substitutes. Therefore, when the price of oil increases, it might not discourage consumption. People will continue consuming oil. The price increase may not change peoples behavior toward consumption of petroleum-based products. Another observation about the demand for oil is that it is relatively inelastic on account of income in OECD economies. Higher incomes would not lead to higher consumption of petroleum-based products. Lower incomes may not discourage consumption of oil-based products. According to Konrad, responding to increase in a price increase of petroleum is not easy and that a price increase might not have any impact on the petroleum demand. Moving closer to the workplace may sound an option, but few people afford to move closer to the workplace. Sometimes it is impossible to move closer to the workplace. People cannot walk to the job, and not all people can start using public transport like railway just because petroleum price has been increased. The another option is to replace a car with fuel efficient car, but this can only work for those who are already very rich. The governments policy on carbon 8382001744345price increase will not change the consumers consumption behaviors on account of price elasticity of demand.
Fig.1 showing price elasticity demand of petroleum (Economics Online)
A price ceiling is the governments decision to impose a maximum price that can be possibly charged for a commodity in the market (Mankiw and Taylor 110). A price floor is the governments action or groups action to impose a minimum price at which a product can be sold in the market (Arnold 85). Based on these definitions, the Canadian governments decision will not be classified as either price ceiling or price floor.
When there is a surplus of petroleum products in the market, the there is a tendency for prices to go down. The governments decision is a small percentage of the overall price of the petroleum product. With the substantial decrease in price due to surplus, the governments decision has no effect. On the other hand, when there is a shortage of the petroleum products in the market, there will be an increase in prices. Governments decision is fixed on a price per ton. As such, the component of the carbon price added will diminish as the prices in the market soar higher. In either surplus or shortage, the governments decision has no effect.
Arnold, Roger. Microeconomics. South-Western Cengage Learning, 2010.
Economics online. The oil market.http://www.economicsonline.co.uk/Competitive_markets/The_market_for_oil.html. Accessed 9 December 2016.
Johnson, Tracy. What a carbon price means for consumers. CNBC News, 04 Oct. 2016. http://www.cbc.ca/news/business/carbon-price-consumer-impact-1.3789224. Accessed 9 December 2016
Konrad, Tom. The End of Elastic Oil. Forbes 26 Jan. 2012. http://www.forbes.com/sites/tomkonrad/2012/01/26/the-end-of-elastic-oil/#3c7ef97768fd. Accessed 9 December 2016
Mankiw, Gregory and Mark Taylor. Microeconomics. Thomson Learning, 2006.
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