Pricing carbon pollution in Canada: how it will work

Canadians know that polluting is not free. We see the costs of droughts, floods and extreme weather, and through the effects on our health. It is time polluters pay.

In December 2016, the Government of Canada, along with most provinces and territories agreed to the Pan-Canadian Framework on Clean Growth and Climate Change to meet our greenhouse gas (GHG) emissions reduction target and grow the economy. Pricing carbon pollution is central to the Framework.

Putting a price on carbon pollution is the most efficient way to reduce GHG emissions. Pricing pollution will drive innovative solutions to provide low-carbon choices for consumers and businesses. British Columbia, Alberta, Ontario and Quebec, representing more than 80 per cent of the population, have already introduced carbon pricing systems. Most other provinces are working to do the same. The federal option will apply in provinces without a provincial carbon pollution pricing system in place in 2018. We are evaluating how best to return the revenues, for example by giving it back to individuals and businesses in the province.

Ensuring a price on pollution across the country is a matter of fairness for all Canadians. The price on pollution should apply evenly to the main sources of GHG emissions throughout Canada in order to reduce GHG emissions at the lowest cost to business and consumers, and to support innovation and clean growth.

This pan-Canadian approach to carbon pricing is a practical and cost-effective way to address climate change and will contribute to substantial emissions reductions, stimulate innovation, clean growth and jobs for the middle class. By putting a price on carbon pollution, the Government of Canada is fulfilling our commitment to address climate change in the most effective and economical way possible.

As outlined in the Pan-Canadian approach to pricing carbon pollution on October 3, 2016, to be fair and effective, carbon pricing systems in Canada need to meet the following criteria:

1. 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.
2. 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.
3. 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 (e.g., Ontario and Quebec).
4. 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 our national 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 percent 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).
5. Jurisdictions should provide regular, transparent and verifiable reports on the outcomes and impacts of their carbon pricing policies.

In the Pan-Canadian Framework on Clean Growth and Climate Change, territorial governments and the Government of Canada committed to work together to find solutions that address the unique circumstances of the territories.

The Framework also committed to the federal, provincial and territorial governments to complete a series of reviews by 2022 in order to provide certainty on the path forward after 2022.

Proposed federal carbon pricing option

The Government of Canada is proposing a federal carbon pricing option that will only apply in provinces that do not have a system of their own that meets the above criteria. This federal option is composed of two elements:

• A levy on fossil fuels that will increase annually.
• Measures to price pollution from industry. This sets limits on pollution, and will ensure that the more an industrial facility pollutes above its limit, the more it will pay. The more a facility reduces its emissions below the limit, the more it can earn by selling credits to less efficient competitors.

This system will put a price on pollution and encourage companies to innovate in order to reduce their emissions.

The cost to households and businesses will differ based on their energy sources and energy consumption.

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.

Other federal actions to address climate change and support a clean healthy environment

Putting a price on carbon pollution is just one way the Government of Canada is addressing climate change. The Government of Canada is also investing in Canada’s communities, their transportation, wastewater and electricity systems, businesses, industries, innovators and entrepreneurs, and research and development projects. Global momentum is driving a move towards cleaner economic growth. Canadian businesses are already taking advantage of this global opportunity. The Government of Canada is making these investments, in addition to carbon pricing, to enable Canadian businesses and workers to participate in this opportunity.