Carbon Tax Relief: Empowering Families for a Greener Future

Carbon Tax Relief: Empowering Families for a Greener Future

What are the Starting Points?

Saskatchewan’s government-owned utility companies SaskPower and SaskEnergy announced a New Year gift for the residents of the region on 28th December 2023. It was declared that the Federal Carbon Tax on home heating would be removed from 1st January 2024.

The Carbon tax removal decision will also show its impact on solar energy directly or indirectly. This blog is curated to deliver the latest information regarding the federal carbon tax and showcase how this decision of the federal government will impact solar energy. 

What is the Carbon Tax and why is it being removed?

Before diving into the main topic, it’s better to understand what the term ‘Carbon Tax’ means. Carbon Tax is the type of fee that is applicable on the usage of any means or activity that emits greenhouse gasses (especially CO2). Many activities release GHGs in large amounts causing environmental imbalance. To put a curb on this and encourage the people to adopt green energy, a Carbon Tax was introduced in 2019.

Recently, Saskatchewan residents were promised that they’ll be free from the carbon tax that’s usually heavy on their pockets. Home Heating is something that is widely used by Saskatchewan residents during the winter phase. Avoiding home heating at the time of winter is almost impossible. Thus, electricity expenses rise due to the addition of carbon tax and this is mainly due to the usage of home heating.

In Saskatchewan, electric home heating makes up almost 55-60% of the electricity expense during the winter months. The government says that the tax will be eliminated by decreasing 60% of the utility bills of the residents. It is estimated that this decision will help the residents save around $400 in a single year.

Originally, the Carbon Tax was imposed on every single means that releases harmful GHGs. When talking about home heating oils, residents were supposed to calculate the amount as $0.1738/liter approximately (the cost of oil does not matter here).

Earlier, the federal government had exempted the residents in Atlantic Canada from paying the carbon tax on heating oils that are used in the region to keep their houses warm. Saskatchewan authority says that this decision has been taken to benefit those who could not enjoy the previous exemption. It is called a step of being ‘Fair’ with the Canadians.

Why is the removal of Carbon Tax significant for Solar Energy?

The Federal Government’s initiative, namely the Carbon tax, holds great significance for the Renewable energy landscape. The main aim of the tax is to encourage the adoption of renewable energies and reduce emissions. Here, we will take a look at how carbon pricing has influenced energy choices and investments and how the removal of carbon tax will impact the renewable energy landscape. 

How are energy choices and investments influenced by the price of Carbon?

The price of carbon is not set in stone. Every fuel has its carbon footprint i.e. the amount of carbon released varies from fuel to fuel. Similarly, the amount of carbon tax that should be levied on harmful fuels varies from one to another. 

Fuels like Heating Oil (Diesel) and Gasoline emit 2.7 kg and 2.3 kg of CO2 per liter respectively, whereas LPG and CNG release 1.5 kg and 1.8 kg per liter. This directly means that burning heating oils and gasoline would cost more than burning LPG and CNG. 

The carbon tax was originally started with the chargeable amount of $20 per tonne, but then every year it kept on increasing by $10 changing the amount to $50 per tonne by 2022. For the year 2023, it began to rise by $15 instead of $10 and this will be continued till the chargeable amount reaches $170 per tonne in 2030.

The increasing rates of the carbon tax are most likely to show a positive influence on energy choices. If implemented correctly, initially people would start opting for lower-emission fuels like LPG.

Investments in the clean energy sector are expected as well. Naturally, the high carbon tax would make clean energy options financially attractive causing more investments in that sector. Renewable energies will see more incline of consumers as people may start opting for them due to increased investments and carbon tax prices. However, the recent exemption of carbon tax from home heating will affect the renewable sector otherwise. 

What changes will be witnessed in the renewable energy sector?

The recent decision to remove the Carbon tax from home heating in Saskatchewan is most likely to show an adverse impact on the energy sector in question. The removal will reduce the expense of electricity generated from non-renewable methods like fossil fuels, coal, etc. causing people to stick to the traditional home heating methods. 

The major effect might be the downfall of incentives for solar adoption to a certain extent. The carbon tax adds up to the utility bills and makes traditional methods more expensive. This being the main motto of tax, makes renewable energies like solar economically attractive. This offers a great chance for energy transition but the removal of the tax acts as a hindrance to the fulfillment of its motto.

The exemption of the carbon tax from home heating would make traditional heating methods cheaper thus, creating a competitive disadvantage for Solar and other renewable heating methods. 

Another major impact could be on renewable energy investments. The exemption decision taken by the federal government creates the impression of a lack of support for solar and other renewable methods in the eyes of investors. As a result, investments in the renewable sector could drift off causing less development and adoption of it. 

Does the absence of Carbon tax indirectly affect the Solar Energy Consumers?

By now we have understood the exemption of carbon tax from home heating will negatively impact the solar sector. But that’s just one side of the coin. At face value, it might seem like the removal of the carbon tax is a threat to the energy transition but in reality, there are possibilities that this decision of the federal government might benefit the solar sector indirectly.

The very first possibility is that due to the downfall of electricity costs, residents might consider investing in solar. How? Because of the removal of the carbon tax from home heating, the overall energy cost will be reduced leaving consumers with more disposable income. These free financial resources then might be allocated to solar technologies. They might find the upfront and installation costs associated with solar affordable and consider opting for them. 

Secondly, as soon as the carbon tax gets removed the market competition will increase to a great extent. This situation will naturally lead to a rise in innovation in solar technologies. New technologies and innovations would be introduced to the market to attract customers. Possibilities are that these new technologies might succeed in overtaking the energy market.

Last but not least, energy cost is something that matters the most to the customers. Being curious, even after the carbon tax gets removed people would still look for alternatives that are less expensive than the traditional sources. The innovations in the solar industry have brought the costs down to a greater extent, this might force people to consider solar as their energy source (also keeping the environmental benefits in mind!)

Let’s see the scope and hindrances for the Solar Industry post the exemption

Like every coin has two sides to it, the exemption of carbon tax from home heating poses two scenarios for the solar industry. The federal government's latest decision could bring opportunities and challenges for the solar industry in the province.

Under this section, we will look at the scope /opportunities for the solar industry post-exemption along with challenges/hindrances.

What scope does the Carbon Tax exemption bring for the Solar Industry in Saskatchewan?

Despite the potential reduction in financial incentives for renewable energy adoption, there are several growth opportunities for the solar industry following this policy change:

Cost Competitiveness: Even when the cost of traditional energy sources will come down after the exemption, solar energy can still be economically attractive to many. This is possible due to the ongoing innovation and developments in the solar sector. These innovations will bring down the solar-associated costs and also introduce additional features thus, making it more viable.

Market Differentiation: Apart from the technical innovation, solar has a major point of attraction and that is ‘sustainability’. It was, is, and will always be a clean source of energy, and that feature can gain lots of attention. The increased awareness about environmental preservation among the people will help in creating market differentiation for solar energy.

Availability of various incentives: Whether it be the utility providers or the federal government, all of them show support for clean energy by offering various incentives and rebates that aim to reduce solar-associated costs as much as possible. Already the costs are coming down and the application of these incentives would reduce the costs even more. Thus, another competitive advantage for solar. 

Local development: The increased adoption of solar energy would also lead to the generation of new employment opportunities in the local area. Employment in areas of maintenance, manufacturing, installation, etc of solar panels and related technologies will increase. 

What are the hindrances in the way of Solar Energy post-exemption?

Since the news of carbon tax removal has surfaced on the web, most of the attention is going to the negative effects it will have on the solar industry. Despite the existence of the positive possibilities, the negatives are something that’s getting most of the attention. Although we have already discussed the impacts of removal on Solar Energy, we shall look at a few more points:

Upfront costs: The experts in the solar industry are working towards bringing the costs down effectively but still the upfront costs (including installation and purchase) seem to be unaffordable for the citizens. Especially after the carbon tax gets removed, traditional home heating methods will become economically attractive causing hindrance in solar adoption.

Grid Integration and Infrastructure: Integrating solar energy into the electrical grid infrastructure sometimes poses a few technical challenges like grid stability, voltage regulation, and grid interconnection standards, particularly in regions with outdated infrastructure or where the grid capacity is limited.

Intermittency and Storage: Solar energy generation is intermittent and dependent on weather conditions, which can pose challenges for ensuring a reliable and consistent power supply. Lack of adequate energy storage solutions to store surplus energy generated during peak sunlight hours for use during periods of low solar irradiance can also be a hindrance for solar energy systems.

What are the ending points?

Lastly, the removal of the federal carbon tax on home heating in Saskatchewan brings both opportunities and challenges for the solar industry. While it may reduce financial incentives initially, solar energy remains competitive due to ongoing innovations and sustainability benefits.

The sector can leverage market differentiation, incentives, and local development to thrive. However, challenges such as upfront costs, grid integration issues, and intermittency persist, necessitating collaborative efforts to overcome them. 

Despite hurdles, strategic planning and innovation can position solar energy as a pivotal player in Saskatchewan's sustainable energy transition.

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