Canadian Underwriter
News

Environment and Climate Change Canada releases technical paper on proposed federal carbon pricing options


May 19, 2017   by Canadian Underwriter


Print this page

Environment and Climate Change Canada (ECCC) has released a technical paper outlining a proposed federal carbon pricing option for provinces that choose not to have their own system in place in 2018.

A backgrounder from ECCC referenced the Pan-Canadian approach to pricing carbon pollution issued on Oct. 3, 2016. To be fair and effective, the backgrounder said, carbon pricing systems in Canada need to meet the following criteria:

  • Provinces can choose which type of system to implement: either (i) a direct pricing system (such as a carbon tax like British Columbia’s or a carbon levy combined with a performance-based emissions system like Alberta), or (ii) a cap-and-trade system (as in Ontario and Quebec);
  • The stringency of the carbon pricing system needs to increase over time and this should be based in legislation – to provide certainty to businesses and consumers and contribute to Canada’s national greenhouse gas (GHG) emission reduction target. For jurisdictions implementing an explicit price-based system, the carbon price should start at a minimum of $10 per tonne in 2018, and rise by $10 per year to $50 per tonne in 2022. Provinces with a cap-and-trade system need to have (i) a 2030 emissions reduction target equal to or greater than Canada’s 30% reduction target; and (ii) a cap-and-trade system with declining (more stringent) emission caps (to at least 2022) that correspond, at a minimum, to the projected emissions reductions that would have resulted from applying the direct carbon price that year (e.g., the reductions that would have resulted from a $10 per tonne direct price in 2018);
  • They need to be introduced in a timely way to ensure that a carbon price applies to the main sources of GHG emissions across Canada in 2018;
  • Carbon pricing needs to be applied to the same key sources of GHG pollution across the country, to ensure that it is effective and fair. At a minimum, carbon pricing should apply to the same sources of GHG emissions as British Columbia’s carbon tax; and
  • Jurisdictions should provide regular, transparent and verifiable reports on the outcomes and impacts of their carbon pricing policies.

“Right now, 97 per cent of Canadians live in provinces that already have a price on carbon pollution, or are working towards it,” ECCC said in a statement on Thursday. “Ensuring polluters pay in every province is central to a credible plan to tackle climate change. It reduces pollution and gives the incentive to companies to innovate and create cleaner solutions.”

The statement added that whichever system is implemented – federal or provincial – revenues will remain in the provinces. Revenues from carbon pricing can be used to lower taxes, like in British Columbia, or support low-and middle-income families, like in Alberta. Ontario and Quebec invest their revenues in “innovative green programs that create good jobs,” the statement said. For the federal option, the government is evaluating how best to return the revenues, for example, by giving it back to individuals and businesses in the province.

Comments on the proposed federal option are welcome until June 30 at Carbonpricing-tarificationcarbone@canada.ca. These comments will help to inform the legislation and the design of the final carbon pricing system.

“Canadians know that polluting isn’t free,” said Catherine McKenna, Canada’s Minister of Environment and Climate Change, in the statement. “We know that it causes droughts, floods and extreme weather events, and affects our health. So it’s only fair that polluters pay, and that there is a price on pollution across Canada. This will reduce pollution, create incentives for companies to innovate and develop clean solutions, and provide certainty to businesses that we are moving to a clean-growth economy.”

All provinces and territories but two signed on the Pan-Canadian Framework on Clean Growth and Climate Change in December 2016. Pricing carbon pollution, along with investments in green infrastructure, innovation and better regulations, will allow Canada to meet its target of reducing emissions to below 2005 levels by 2030.

The carbon cost will reflect the GHG emission footprint of each fuel type. For example, a $10 per tonne carbon price is approximately 2.3 cents per litre of gasoline, 2.7 cents per litre of diesel and 1.5 cents per litre of propane.