Summary: An analysis was conducted to determine the financial impact of the Climate Action Incentive (CAI) and Fuel Charge (FC) to our household of two adults.

The result of the analysis has shown that the annual CAI benefit exceeds the annual FC cost for each year of the sample period.

Objective: In March 2019, when it was capturing many of the headlines at that time and the CAI benefit was a new addition to our then recently completed 2018 income tax returns, I was curious to know whether or not our household CAI benefit (2 adults) would be more or less than the total household FC costs and the year-to-year trend.

Methodology: An analysis was conducted by mathematical calculation of direct and indirect FCs and comparing those costs to the CAI benefit. The analysis used FC costs from the 2018 calendar year compared to the 2020 CAI as a test case and an early indicator of the first Federal Carbon Pricing cycle (1 April 2019 to 31 March 2020) and is now updated annually in early April with new data for the previous FC/CAI cycle.

Direct FC is exact and is the known FC costs incurred from gasoline consumption for two personal vehicles and natural gas consumption for home and hot water heating.

Indirect FC is a statistical assumption and is the known FC cost incurred by worst-case diesel-fuelled highway transportation of all goods/groceries transported from Vancouver (source) via Toronto (distribution) to Owen Sound. The statistical assumption of indirect FC was calculated for tractor-trailer transportation of 100kg/week of goods, 4,700km distance from Vancouver to Toronto to Owen Sound, tractor-trailer fuel economy of 40l/100km and using the yearly FC for light fuel oil, i.e. diesel fuel. The author of this analysis concedes that the FC incurred due to manufacturing processes and agricultural practices are not a discrete line item in the analysis. However, by using a very generous value of 100kg/wk, choosing the greatest transportation distance for all goods/groceries, a household philosophy of adhering to a policy of ‘eat local’, ‘Product of Ontario’, ‘Made in Canada’, and not being gratuitous consumers, the author believes that FCs passed on to the end-user due to manufacturing processes and agricultural practices at source are accommodated in the indirect FC, as calculated.

Conclusions: The result of the analysis showed that the CAI benefits exceed the FC costs each year of the sample period with a healthy bias in the trend towards the CAI.

The annual volume of natural gas required for heating remains nearly constant and contributes ~40% of the total FC. The FC attributable to vehicle fuel, i.e. personal vehicles and the indirect FC, can vary depending on the amount that the personal vehicles are driven each year, and contributes ~60% to the FC incurred for the years analyzed.

Recommendations: The maximum impact to lower household FC is to replace the gasoline-fuelled personal vehicles with electric vehicles which will reduce the total annual FC by ~50%. Advocating for a national strategy and successfully migrating diesel-fuelled highway transport and agricultural machinery to hydrogen fuel will achieve a further FC savings of at least 5%.

source: A regular Hub reader