How to Profit from the Carbon Tax

The carbon tax is a polarizing issue.  Many people despise having any ‘new tax’ imposed upon them out of principle, and many see the downstream benefits of the new revenue stream and clean energy initiatives.  Regardless of your stance, what matters is what decisions you make going forward.

The easy and all-to-common reaction is anger and social media outcry but a more useful course of action is to observe what is being taxed and what goods/services are being provided.  To profit from the carbon tax, one must simply reduce consumption of the items that are being taxed and invest in goods/services that are being provided from the provincial revenues.

Sources of Carbon Tax

The carbon tax is ‘charged on all fuels that emit greenhouse gas emissions when combusted’ such as gasoline, diesel, propane and natural gas.   Marked farm fuels and certain others are exempt from the carbon tax.

One common misconception is that electricity prices will be affected/increased.  This is not the case as large emitters of carbon emissions are already taxed under existing legislation.

There are additional upstream effects of the tax which will be passed onto consumers.  The Government of Alberta estimates average household cost increases of $50 to $70 in 2017 and $70 to $105 in 2018.  This range assumes that 50% to 75% of the upstream costs will be passed onto consumers.  If 100% were to be passed onto consumers then the average household increase will be $100 in 2017 and $140 in 2018.

For this analysis we will use the conservative assumption that 100% of the upstream costs are passed onto the consumer.

Sources of Savings

The carbon tax revenues are reinvested into various economic channels such as providing rebates for those with low income/children, investing in low emission infrastructure/public transit, renewable energy projects (such as installing solar power systems in Alberta), energy efficiency, indigenous community projects, and reducing the Alberta small business tax by 33%. 

One major source of savings is the Alberta Residential and Commercial Solar Rebate which provides homes and businesses with 30% or 25% off their solar power system.  The rebates from installing solar panels will not be included in this analysis as that would be too easy. The analysis will focus on the most simple and profitable measures.

Energy Efficiency Alberta (EEA) was formed through the carbon revenues and acts to raise awareness surrounding energy usage and promote/deliver programs to benefit Albertans.  Through EEA, homeowners can receive rebates on regular household items such as LED’s, smart thermostats, dimmer switches, smart power bars, low-flow kitchen/bathroom faucets and showerheads, tankless water heaters, indoor/outdoor motion sensors, clotheslines and energy efficient fridges, washers and lighting fixtures.

Additional home improvement rebates are available for insulation upgrades and new windows.

This is just a short list. There are lots of other measure you can take to reduce your carbon tax.

Assumptions

It is important to note that it may not be cost effective to spend money on new appliances if your existing appliances are in excellent working condition but if you need to replace them anyways, energy efficient options are favourable.

This analysis will not use every rebate possible as that is not practical but rather will take into account a few key measures:

·         Replacing incandescent bulbs with LED’s

·         Installing a smart thermostat

·         Installing dimmer switches

·         Installing smart power bars

·         Installing a low-flow kitchen faucet

·         Installing low-flow bathroom faucets

·         Installing energy star fixtures

·         Using a clothes line for 10% of loads

·         Installing an energy star washer

Measures which can add further value but are not included in this analysis:

·         Installing an energy efficient fridge

·         Installing a tankless water heater

·         Using indoor/outdoor motion sensors on lights

·         Installing solar panels [this will greatly reduce energy consumption]

·         Upgrading windows [this will greatly reduce energy consumption]

·         Upgrading insulation levels [this will greatly reduce energy consumption]

An ‘average’ family in Alberta is assessed as:

·         Earning a household income of $96,000 (this conservative value was chosen to be just above the threshold required to receive a full rebate, i.e no rebate will be used in this example - homes below this threshold will receive additional money)

·         Has 2 kids

·         Uses 10GJ of natural gas per month (Alberta average)

·         Uses 340L of gasoline per month (3 x 80L + 2 x 50L fills per month)

·         Uses 2.98L of propane per month (4.7 gallons per standard tank x 3.8L per gallon x 2 propane tanks per year for BBQing)

·         Spends $1200 per month on food/beverages ($300 per week)

How to Profit

To calculate the carbon tax costs we used the Government of Alberta carbon tax calculator with some added contingencies to account for potential errors. At the time of writing this article, the cost of carbon was $20/t.  A multiplier of 1.5x has been included on the levy costs to account for the increase of carbon pricing to $30/t. 

No rebate has been assessed as the income level for this home with two people is above $95,000. 

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EEA provides a home efficiency calculator which shows the various rebates and cost savings of different energy efficiency measures.  By implementing a few simple tasks, energy savings of over $400 per year can be realized in combination with over $400 in rebates.  One could easily implement more energy efficiency measures to further increase savings, but only a few were added as it is unlikely that a home will need all the upgrades possible. 

The energy savings will continue year after year and will increase as the cost of electricity, gas and water increases.

It is clear that in Year 1 (2018), there is a clear net positive result of $312.80.  One can realize immediate positive cash flows from installing energy efficiency product!

From the combination of the two tables above, it is clear that a few simple measures can greatly reduce your energy demand. These measures paired with the government rebates will leave you with more money in your pocket than prior to the carbon tax taking effect.

Conclusion

It would not be difficult to implement more energy saving measures than those cited here.  Upgrading your windows or increasing your home's insulation will make a substantial difference in your heating charges and increases the aesthetics of your home. If you were planning on installing solar panels already, then rebates of up to $10,000 will pay for all your carbon tax costs for decades to come. 

Although the carbon tax may seem like a thorn in one’s side, it can easily be used to one’s advantage through smart purchasing.