The Impact of Carbon Tax on Canadian Hospitality and Tourism Businesses
We have all heard about ‘carbon tax’ but what does it actually mean and who does it affect? Essentially, it’s a tax that puts a price on carbon dioxide emissions and other greenhouse gases, which are negatively impacting our climate. As a consequence, it affects us all including industry, businesses and governments worldwide.
The 2018 Greenhouse Gas Pricing Act (or Trudeau’s carbon tax) is a national framework for carbon pricing. It sets minimum pricing standards which provinces must meet. The federal government in Ottawa has the judicial power to apply its own carbon tax, which is also known as a “backstop”, acting to implement the tax on those provinces that have either not implemented their own system or fall short of the national standard.
Seven of Canada’s 13 provinces and territories currently pay the “backstop” rate. Currently this sits at C$30 per tonne of carbon dioxide released and will rise sharply to C$170 per tonne by 2030. The legislation allows each province to set its own carbon price. However, if the province doesn’t meet the necessary standard, the federal government implements its own system. On the flip side, provinces will see revenue return through rebates and other programs.
Overall, this tax aims to change behaviour and shift investment from carbon-intensive goods and services. On an individual basis, the hope is that people will make less carbon-intensive decisions when it comes to everyday life.
What does this mean for the future?
It’s clear from the outset that the hospitality and tourism industry, especially airlines are among the most likely to be impacted by carbon taxes. Initially, these changes will lead to higher costs in order to deliver on a decrease in carbon-intensive activities.
Airlines are likely to be taxed directly. However, indirect impacts fall on consumers in the form of costs being “passed down” to end users. This will also impact hotels, casinos, gaming facilities and other facility-based sectors.
If businesses pass on the costs of a carbon tax to consumers by increasing prices, this increase could affect consumers’ purchasing power with energy costs increasing for natural gas, electricity, fuel oil, and gasoline.
How can the hospitality industry transform this into business opportunities?
There is a significant opportunity for hotel and leisure developers with the introduction of large increases in federal carbon taxes. Such a move can be expected to result in similarly large increases in the market prices of carbon and offset credits. Eagle eyed developers have an opportunity to reclaim costs from renewable energy and emission reduction projects. They may receive greater revenue from the sale of credits and recoup initial outlay in capital.
Offset versus tax
While the federal carbon tax will expose the airline industry to carbon taxes that were previously exempted by provincial frameworks, the uptick in interest for environmental stewardship by travel consumers presents a unique opportunity.
A 2019 study determined that upstream offsets were preferred over downstream taxes, increasing customers willingness to pay. If airlines develop a carbon offset program, travellers are more likely to opt in and pay premium prices. However, the study recognizes that the stigma of “tax” will have an adverse effect on travelers.
Want to understand what carbon taxes mean for your company, contact RHT Advisory, Inc. today!