Pan-Canadian Carbon Plan

Courtesy of Stikeman Elliott. View original article here.

What does it mean for you 

As of January 2018, all Canadians will be paying a price for carbon.

The Announcement

After much anticipation, Justin Trudeau recently announced that Canada would implement a national price on carbon by 2018. The announcement was met with significant media fanfare and a touch of provincial dramatics, but a closer look reveals that Trudeau’s carbon plan may uncover more questions than answers.

The following will highlight what we know and, almost as importantly, what we don’t know about Trudeau’s Pan-Canadian Approach to Pricing Carbon Pollution (the Plan).

Canadian Carbon Pricing: The Basics

• The federal government will set a floor on carbon pricing beginning on January 2018 for those provinces that do not implement their own regime
• The Plan allows provinces to implement either a carbon tax or use a broad market based mechanism, such as a cap-and-trade scheme
  • Provinces which choose to implement a carbon tax: A national carbon floor price will be set at $10/tonne in 2018 and rise to $50/tonne in 2022
  • Provinces which choose to implement a cap-and-trade scheme: Emissions reduction must remain in line with Canada’s 2030 commitment target of 30% below 2005 emission levels
• Revenues generated from pricing carbon will remain in the province of origin

Canadian Carbon Pricing in Context

We must concede that, even as more of a proposal than an actual defined policy, Trudeau’s Plan is significant when compared with other carbon pricing initiatives globally. Pro forma, the Plan would be among a handful of leading global initiatives in setting carbon prices – and certainly Canada is the only major hydrocarbon producer to have yet advanced a carbon pricing plan which is this ambitious. Based on the World Bank’s 2016 Carbon Pricing Watch^[1], the Plan compares to other carbon pricing regimes as follows, all determined on a pro forma basis on the assumption the federal proposal is implemented as proposed.

 

On a comparative basis, Canada’s carbon pricing appears to present a sensible balance between the environment and the economy, but under the surface, the proposed Plan is far from complete.

Outstanding Issues

• The tools that the government will use to actually introduce and enforce a floor price on carbon
• How the federal government intends to properly measure and consolidate the two different pricing methods (carbon tax vs. cap-and-trade)
• How the proposed pricing lines up with Canada’s commitment under the Paris Agreement

While Trudeau’s Plan emphasized consistency between the provinces and suggested using existing regimes, such as British Columbia’s carbon tax or Ontario’s cap-and-trade, as policy anchors, the Plan doesn’t yet adequately account for the fundamental differences between the two methods. The Plan also doesn’t yet connect the proposed pricing floor with Canada’s commitments under the Paris Agreement at least not in any tangible way. For example, Alberta’s carbon pricing proposal, embraced by Trudeau’s Plan, aims to keep emissions flat until 2030, a far cry from the required 30% reduction under the Paris Agreement. So is Alberta’s Plan in compliance or not? Will Saskatchewan receive similar treatment and if so, will the remaining provinces be left to pick up the slack? These questions echo some of the issues we identified prior to the federal election and which still remain unresolved.

Following the announcement, Trudeau issued a dire warning to the provinces. “There is no hiding from climate change. It is real and it is everywhere.” But hiding or not, the provinces will need real answers to some tough questions before they can take, and the nation as a whole can take, a coordinated stance on climate change.

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^[1] World Bank Group; ECOFYS. 2016. Carbon Pricing Watch 2016. Washington, DC: World Bank. © World Bank. https://openknowledge.worldbank.org/handle/10986/24288 License: CC BY 3.0 IGO.

^[2]  €4.96 as of September 30, 2016, converted into U.S. dollars at prevailing exchange rates.

Courtesy of Stikeman Elliott. View original article here.