Canada’s Carbon Pricing – A Dangerous Policy, A Beautiful Policy

I’m pleased to welcome Caterina Lindman as a contributor to BoomerWarrior.Org. This post is an OpEd which was published in TheRecord.Com (Waterloo Region Record online newspaper). Caterina explores the best and the worst of Canada’s new carbon pricing policy. She calls it a dangerous policy, a beautiful policy.

The following graphic shows the daunting task Canada faces to meet its Paris targets for the reduction of greenhouse gases. Even with the new carbon pricing policy, emissions will still be trending upwards by 2022 when the fee per tonne will be $50. (Rolly Montpellier~Editor for BoomerWarrior).

The figure shows that Canada’s greenhouse gas emissions projections under a “with current measures” scenario are projected to be 768 megatonnes (Mt) CO2 eq in 2020 and 815 Mt CO2 eq in 2030. It also shows the expected range of the same projections under different economic and energy price and production scenarios. For 2020, the expected range of emissions could be between 749 Mt and 790 Mt. For 2030, the expected range of emissions could be between 765 Mt and 875 Mt. The figure also shows Canada’s 2020 greenhouse gas emissions target (622 Mt)  and Canada’s 2030 target (524 Mt).

Canada’s Carbon Pricing Plan

I love the opening lines from A Tale of Two Cities, where Charles Dickens writes: “It was the best of times, it was the worst of times … it was the spring of hope, it was the winter of despair.” The announcement by our federal government that we would have a national carbon pricing policy in place beginning in 2018 evoked the same type of contradictory feelings. Some thought it was the best federal taxation policy, others thought it was the worst federal taxation policy. Some thought it went too far, and others thought it did not go far enough.

Canada’s national carbon tax will start in 2018 at $10 a tonne of carbon dioxide equivalent, and rise by $10 per tonne per year to $50 a tonne in 2022. Economic modelling suggests that a price of around $50 a tonne makes coal uneconomical. As we price carbon pollution, alternatives will become more available, and will be less expensive than using fossil fuels. The result is fewer greenhouse gas emissions, less air pollution and new jobs in the clean technology sector.

Comparison to Citizens’ Climate Lobby Recommendations

In preparation for the federal climate consultation, Citizens’ Climate Lobby recommended a minimum price of $30 a tonne in 2018, increasing by $10 per tonne per year, so that, by 2030, we’d be at $150 per tonne.

If we want to contribute our fair share to limiting warming to 1.5 degrees above pre-industrial temperatures, then the price needs to be much higher than $150 per tonne by 2030.

So, maybe just outlining what the price will be to 2022 is a good thing, because it opens up the possibility of stepping up the price with bigger increases after 2022. For example, if the price were to increase by $20 a tonne after 2022, then we’d have a price that would be $150 per tonne in 2027.

Carbon Fee Revenue

One big question that remains unanswered is what will happen with the carbon fee revenue?

The federal government has made the carbon taxes revenue neutral in the sense that they are handing over any revenues they collect (if the national price is not met at the provincial level) to the provinces. It is up to the provinces to decide what to do with the revenues. Citizens’ Climate Lobby advocates for the revenues from the carbon fee to be returned to households in an equitable manner (e.g. per capita, based on the number of people in the household).

Other popular approaches are to return a portion of the revenues to the public in order to protect the poor from price increases, and to use the remaining revenues to build public transit and reduce taxes. It’s really important the revenues be used in a way that is supported by the public, so the public will be willing to see it increase more quickly after 2022, which is what is needed to avoid climate tipping points.

British Columbia’s revenue neutral carbon tax was introduced in 2008 at $10 a tonne, and increased by $5 a tonne for five years, reaching $30 a tonne in 2012. The tax has not been increased since. Maybe they were waiting for the rest of the country to catch up! By having a national price on carbon pollution, the federal government can create border tax adjustments in order to make sure imports are not put at an advantage if they come from jurisdictions that do not have a carbon price.

It’s critical that other countries implement carbon pricing, as well, so that we are working together globally to reduce emissions. The following world map shows the global growth of carbon pricing programs.

Today, about 40 national and over 20 sub-national jurisdictions responsible for almost one fourth of global greenhouse gas emissions are putting a price on carbon. Together, these initiatives cover the equivalent of almost 6 gigatons of carbon dioxide, or about 12% of global emissions. World Bank. 

So the danger of Canada only outlining what the price will be to 2022 is that it gets stuck at $50 a tonne, and we won’t have enough of an economic incentive to reduce emissions. The beauty of only outlining the price to 2022 is that we have the opportunity to see how the tax works, what the science says about our remaining carbon budget and what other countries are doing. It seems to fit in well with the UN idea of having check-ins with countries every five years to review and increase actions to meet our shared commitment of preserving a safe climate. Canada will be in the situation where we have a carbon pricing framework in place, and we can increase the price accordingly.

To paraphrase Dickens, it is a dangerous policy, it is a beautiful policy. Let’s be vigilant in order to avoid the danger and to make it work beautifully.