The Magic Carbon Dividend Plan

The Magic Carbon Dividend Plan—yes, it’s too good to be true

Source: The Fraser Institute
Author: Ross McKitrick

Will households be better off under a carbon tax-and-dividend plan? A recent report from Canadians for Clean Prosperity, a pro-carbon pricing advocacy group, claims they will, based on an analysis by David Sawyer of Enviroeconomics.org. It suggests that across income levels and provinces, households will pay less in carbon taxes than they receive in rebates, resulting in a net gain for everyone.

It sounds too good to be true, and it probably is.

The overly-favourable result arises from undercounting two types of costs—lost earnings in the business sector and driving away new investment. Crucially, the report does not use a proper tax policy model (namely a “general equilibrium model”), instead it’s a simplified, ad hoc empirical analysis that tries to capture some key effects. The things that are left out, however, matter.

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