What’s Stopping Canada from Putting a Price on Carbon?

For the first time in several years, carbon pricing in Canada is back on the national radar.

Recently a group of more than 60 Canadian experts published a report, Acting on Climate Change, that outlined Canada's path to a low-carbon future. Their first recommendation? Put a price on carbon. The idea seems to be gaining serious traction with Canadians, the majority of which support carbon pricing according to a recent Angus Reid poll. 

In the lead up to this month’s Premiers’ Climate Summit in Quebec City, Ontario’s premier Kathleen Wynne announced her province would join Quebec’s cap-and-trade agreement with California — putting major stock in a carbon-pricing solution to provincial emissions.

The conservative Manning Centre conference was praised for holding an “adult conversation” about carbon pricing in March just after a collaboration between oilsands majors and green groups working together for a carbon tax hit the press.

Even Preston Manning and David Suzuki can agree that pricing carbon is at least one important part of addressing climate change.

The vast majority of Canadians think the federal government, not the provinces, should take the lead on establishing carbon pricing in Canada, according to a recent Nanos poll. Meantime a new Angus Reid poll shows a slight majority across the provinces are in support of a national carbon tax system.

Source: Angus Reid

So what’s keeping Canada from a serious national price on carbon?

The Job Killer: Canada’s Controversial Carbon Price Past

To answer that question, you need to look back to 2008 when Stephen Harper’s Conservatives defeated the Liberals and their national carbon tax proposal by claiming the tax would be a job-killer.

It seemed the very mention of a carbon tax had, rather unfortunately, become politically toxic.

But there’s now ample evidence that pricing carbon doesn’t hurt economies.

British Columbia is Canada’s most championed example of a successful carbon tax regime. It has been called the “most significant carbon tax in the Western Hemisphere by far.”

The province’s tax has been in place for seven years and B.C. continues to perform above the national average in terms of economic activity (more on B.C.’s carbon tax in Part 2 of this series).

Internationally, no economy has crashed due to placing a price on carbon pollution.

So it was something of a surprise when Harper said late last year that “it would be crazy” to regulate the oil and gas sector.

The comments came after Harper’s very public condemnation of carbon tax alongside Australian Prime Minister and notorious climate villain Tony Abbott.

Just months later, however, Harper vocalized support for Alberta’s carbon levy, saying “we’re very open to see[ing] progress on this on a continental scale.”

The new tone seems to indicate the 2015 federal election will carry a very different carbon price tune. As it currently stands, all federal parties support carbon pricing to varying degrees this time around.

The debate will now shift to a conversation about how Canada should move forward on pricing carbon pollution.

What Does a Carbon Price Do?

Carbon pricing lets you provide an incentive across the economy to reduce GHG emissions and lets, to some extent, the markets figure out where the most cost-effective solutions are,” Matt Horne, associate regional director at the Pembina Institute, told DeSmog Canada.

The idea behind carbon pricing is simple — put a price on using or burning GHG-producing fossil fuels (oil, natural gas, coal) and an incentive is created to produce fewer emissions.

The ‘polluter pays’ principle signals to companies, governments and individuals that the ‘business-as-usual’ scenario — freely emitting carbon pollution — is no longer acceptable.

Carbon pricing is about correcting the true costs of burning fossil fuels to account for damages,” Nic Rivers, Canada research chair in climate and energy at the University of Ottawa, said. “Right now, we don’t pay for dumping CO2 (carbon dioxide) and other greenhouse gas emissions [into the atmosphere].”

So if you want to make polluters pay, “carbon pricing meets the criteria,” Dave Sawyer, one of Canada’s leading environmental economists, told DeSmog Canada.

If you believe we need to go much deeper in our [emissions] reductions, as most of the world does and clearly the science indicates, you want to do it in a cost-effective manner.”

An effective carbon price can really help a government or industry achieve greenhouse gas reductions, Sawyer said. More importantly, “you can do it cost effectively, while minimizing adverse impacts on households and businesses.”

Key Elements Of A Good Carbon Pricing System

Getting to the appropriate ‘cost’ of carbon is where major divergences in pricing schemes seem to appear.

When I am looking at a carbon pricing system, I am more interested in the design and the policy details as opposed to whether it is a carbon tax or cap and trade. How stringent is the system?” Rivers said.

What emissions does it cover? How fast does it ratchet down [those emissions]?”

Canada currently uses a blend of carbon-pricing approaches.

B.C. has its carbon tax, Alberta’s system is called a carbon levy and Quebec and Ontario have adopted another variation known as cap-and-trade in cooperation with California.

A well-designed carbon pricing system should have two outcomes: reducing GHG emissions and allowing businesses, industry and the economy to remain competitive. Much of this hinges on the per tonne charge a system puts on emissions.

Carbon Price Outcomes: The Specifics

Take B.C.’s carbon tax, which currently charges polluters $30 for every tonne of carbon pollution they emit.

When the tax was implemented in 2008, the ‘carbon price’ was $10 per tonne and slowly increased over time. This low price on GHG emissions at the start was meant to give companies the opportunity to adapt to the new economic realities and modernize their business practices to low-carbon and low-energy consumption.

Slowly increasing the price also has the advantage of strengthening the incentive to produce less GHG emissions as time goes on.

Quebec and Ontario’s cap and trade system works along the same lines with some notable differences (more about that in Part 2).

A good carbon pricing system will also want to avoid placing a seemingly ‘unfair’ or ‘burdensome’ financial penalty on everyday Canadians. But that doesn’t mean consumers aren’t implicated in carbon prices.

In B.C., prices went up at the pump and on home heating bills. But for British Columbians, there was an acceptable balance between costs and rewards.

It made climate action real to people,” Merran Smith, the head of Clean Energy Canada, told Grist.

I think it really increased the awareness about climate change and the need for carbon reduction, just because it was a daily, weekly thing that you saw.”

One of the keys behind broad support for B.C.’s carbon tax is that it’s revenue neutral, meaning taxes have been cut in other areas, resulting in B.C. now having the lowest personal income tax in Canada.

The same Nanos poll that found Canadians want the federal government to lead on carbon pricing, also found around 60 per cent of Canadians do not want to see fuel and heating prices go up even if it is to combat climate change.

Yet, in B.C. the majority of residents support the carbon tax.

Polls have shown anywhere from 55 to 65 percent support for the tax,” Stewart Elgie, director of the University of Ottawa’s Institute of the Environment, said.

And it would be hard to find any tax that the majority of people say they like, but the majority of people say they like this tax.”

Carbon Pricing ‘Not A Silver Bullet’

We certainly would not look at carbon pricing as a silver bullet solution, but it is an important contributor to an overall solution,” Horne said.

If Canada is going to meet its international obligation to drastically reduce its carbon footprint, new GHG emissions reduction initiatives are needed in addition to a price on carbon.

The federal government could play a game changing role here — something we’ll take a closer look at in Part 3 of this series.

You would want [carbon pricing] to be complimented with other policies and regulations where appropriate,” Horne said.

Image Credit: PM Photo Gallery