Questions and Answers
How NWT carbon tax revenue is used is one of the most important decisions we need to make, and it requires the input of NWT residents, business and industry.
Below are some frequently asked questions about carbon pricing in the Northwest Territories:
Why is the GNWT introducing a carbon price now?
Implementing a strategy to mitigate and adapt to climate change in collaboration with other governments and organizations is part of the 18th Legislative Assembly's mandate, and carbon pricing is acknowledged as one of the most powerful incentives that governments have to encourage residents, business and industry to reduce their use of carbon-based fuels. When the Northwest Territories signed the Pan-Canadian Framework for Clean Growth and Climate Change in Dec 2016, it committed to meeting a federal benchmark for carbon pricing by 2018.
What happens if the GNWT doesn't have carbon pricing legislation ready by the federal government's 2018 deadline?
The federal carbon pricing benchmark calls for a carbon price starting at $10 per tonne of carbon emissions in 2018 that will increase annually until it reaches $50 per tonne in 2022. In May, the federal government released its plans to implement a national carbon pricing solution-or backstop-in 2018 for any province or territory that doesn't have a carbon pricing system that meets the benchmark.
Why a carbon tax instead of cap-and-trade?
A carbon tax is the simplest and most straightforward option to implement carbon pricing in the Northwest Territories because it could be introduced using the existing infrastructure that is already in place for the NWT fuel tax. A cap-and-trade system is more complex and expensive to administer, and would not be appropriate for a small open resource extraction-dependent economy like the Northwest Territories'. To read more about carbon tax versus a cap and trade, please refer to the discussion paper.
How will an carbon tax impact NWT residents?
When introduced, a carbon tax would be added to all carbon-based fuels sold in the Northwest Territories and consumers will see the tax shown on their receipts. Residents will pay the tax both directly, through higher fuel costs, and indirectly, through taxes passed forward by businesses because of the related increase in prices for the goods and services they provide. The GNWT estimates that a carbon tax of $10 per tonne would increase household costs by $115 to $143 a year.
What is revenue recycling?
If carbon tax revenue is recycled, it means that all or part of the revenue collected by the GNWT would be recycled back to NWT residents and the economy through redistributive mechanisms like tax reductions, rebates, and subsidies.
Where will the money from an NWT carbon tax go?
There are many different approaches that the GNWT can take towards using carbon tax revenue. It could be:
- redistributed to NWT households through direct transfers, like tax credits or rebates intended to reduce the impact of any cost of living increase caused by the carbon tax;
- redistributed to business or industry to mitigate the effects that the carbon tax has on their ability to be competitive;
- used for direct spending on projects that will reduce greenhouse gas emissions; or
- treated like other tax revenues and used to pay for other government programs and services.