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What Does the Carbon Tax Mean for Your Business?

Allen Services & Contracting has been operating in Canada's North since 1980.

The carbon levy came into effect on January 1, and while some have already received their rebates, many businesses are looking at it as just another tax increase—one that is adding insult to injury in an inhospitable economy. How much of an impact is the carbon levy going to have on the business world?

The carbon levy introduces a financial incentive to encourage families, businesses, and communities to reduce their usage of transportation and heating fuels (diesel, gasoline, natural gas, and propane) that release carbon pollution into the environment. For 2017, the levy will apply to the amount of carbon pollution that is created at a rate of $20 per tonne, and in 2018, that rate will increase to $30 per tonne (the exceptions being marked gasoline and farm fuels, which are exempt from the levy).

While the carbon levy means an overall tax increase, many households are eligible for the Climate Leadership Adjustment Rebate, an income-test program that is designed to help lower and middle-income Albertans offset the increase in carbon costs. The rebate is based on income rather than energy use, and six out of 10 households will automatically receive a full rebate, as long as they’ve filed their 2015 taxes. An additional 6 per cent will receive a partial rebate and small businesses will receive a one-third tax rate reduction.

However, while the majority of Alberta’s population may stand to see a benefit from the carbon levy, it’s hitting the majority of businesses hard in an economy that is already making it difficult to keep the doors open.

As Joel MacDonald, founder of Energyrates.ca, describes, “We are seeing a lot more traffic as people try to better understand the new carbon tax, and in some cases, it is causing Albertans to review their options.”

“Energyrates.ca is Alberta’s leading energy rates comparison website,” notes MacDonald. “We provide an unbiased third party review and comparison of Albertans’ electricity and natural gas retailer options.

We’ve noticed that a large number of Albertans are taking an interest in electricity and natural gas retailers, using the carbon levy as an impetus to review their option. From late October to December, traffic on our website tripled. The carbon levy has brought the increase to their attention, and now they are asking what they can do to decrease energy costs.

“For those with fixed priced energy products, there will be a definitive increase on their bills. Those who have chosen floating rates will have to wait and see if the levy charges will be offset by a change in market price.

“The carbon levy is also applied differently between natural gas and electricity. The natural gas levy is billed to each individual consumer, whether they are in residential housing or in a business. They’ll see a line item on their natural gas bill that says ‘carbon levy 1.011 cents per GJ (plus GST).’ In 2018, that will increase to 1.517 cents per GJ (plus GST).”

MacDonald continues, “Electricity rates will increase as well, but with electricity, carbon is being created at the generation sites, not at each individual home (or business). In this case, it is the generators that will be charged the levy, and they, in turn, will pass the fee along to the consumer in the form of higher electricity prices, but it will not appear as a line item on your bill.

“The goal is to reduce carbon. If it costs more, then people will be more motivated to find alternatives or use less, and in terms of natural gas heating. The increase is really not that significant for the vast majority: if your natural gas bill is one per cent of the overall budget and you are expecting it to increase 10 per cent, then the carbon levy is only adding a tenth of a percent of an increase to the overall budget.”

However, MacDonald notes, “One piece of feedback we have received is that small business are very frustrated that the rebates are being processed personally, but the charges are being applied to their operations.”

For Lee McMann, transportation and logistics manager at Allen Services & Contracting Ltd., the frustration is genuine. “The carbon tax is just another obstacle in a tough business environment,” he notes.

“The Premier commented that fuel prices fluctuate between 4 and 5 cents per litre anyways, so we should hardly notice the increase created by the carbon tax,” McMann says, “but we’ve noticed a pretty dramatic difference. We’ve had increases in excess of 5 per cent of our fuel costs as result—and fuel costs represent 35 per cent of our operating costs. That’s just our first direct cost, so it’s definitely impacting margins, and those impacts may have significant consequences for the future of a transportation-based company.”

“We are going to have to make changes,” he notes. “Suppliers send us information indicating that the carbon levy is being added to invoices. We’ve seen increases ranging from 1.4 to 2.5 per cent.

Throughout the downturn in the economy, the company margins have been tightened considerably over the years. Another 2 or 3 per cent squeeze will affect operations, and that means we’re going to have to take a look at the type of work we continue to do and how profitable that might be.

“The other thing we are extremely cautious about is the government in the Northwest Territories. So far, they haven’t implemented the carbon levy there, but they have one year to do so or it may be imposed upon them. When that happens, our Northwest Territories operations will be impacted, and because the cost of fuel is considerably higher there. Those impacts will be dramatic.”

Allen Services has been offering road transportation, ice road transportation, and civil construction in Edmonton for 14 years, and it has been operating in the Northwest Territories since 1980. “Because of our operations in the Northwest Territories, we’ve had a pretty exceptional year. But that being said, two months ago the phones stopped ringing,” says McMann.

“Over the last two years, our margins have really been crushed. It’s a tough economic time in the industry,” McMann continues, pointing out that a number of transportation companies have taken a serious hit as a result of the recession. “So many of our competitors were forced to go out of business last year, and there is a huge amount of equipment leaving the marketplace, heading east or to the US. There has been a lot of talk about things turning around, and we are starting to see more equipment moving on the highway, but we aren’t seeing that come back to business yet. It’s been a considerably tough time for Alberta, and it’s going to take time for businesses to find their feet again, but the strong will survive,” he adds, citing their Northwest Territories operations as key to their continued success.

“We’ve kind of hammered out a niche marketplace in the far north,” McMann explains, “and that has helped us maintain our margins.” That could change with the carbon tax.

“It’s frustrating,” McMann confesses. “The government says the carbon tax is cost-neutral, but it’s not. It’s going to impact everyone because even grocery store items are going to be affected by increases in transportation costs. We have a responsibility to our employees. It’s critically important that we can offer them a reasonable lifestyle. They are hardworking people, and that’s partly why this becomes frustrating. It seems like the harder we work, the more the government wants of it.

“It’s a hard hit in a tough economic time, but we just have to try to get through,” he concludes. “The light at the end of the tunnel is that we are assisting our employees in building a better future.”