Policy Forum: Cross-Border and Multijurisdictional Issues in Carbon Taxation - Carbon Pricing and the Income Tax

Abstract

Canada's federal carbon-pricing scheme and its subnational counterparts might not be sufficient to meet the target of net zero by 2050. In the meantime, carbon dioxide (CO2) emitters are allowed to profit by externalizing environmental costs and risks on to present and future taxpayers. When the income tax ignores these externalities, it implicitly subsidizes CO2-intensive activities relative to less harmful alternatives. In examining our carbon tax policy options, we ought to consider whether the externalization problem could be addressed within the income tax to ensure that the income tax system assists, rather than undermines, the net zero pledge.

Keywords: Carbon pricing, carbon taxes, valuation, income, efficiency