Pricing carbon pollution

Overview

Carbon pricing is broadly recognized as one of the most effective, transparent, and efficient policy approaches to reduce GHG emissions. Many Canadian provinces are already leading the way on pricing carbon pollution. British Columbia has a carbon tax, Alberta has a hybrid system that combines a carbon levy with a performance-based system for large industrial emitters, and Quebec and Ontario have cap-and-trade systems. With existing and planned provincial action, broad-based carbon pricing will apply in provinces with nearly 85 per cent of Canada’s economy and population by 2017, covering a large part of our emissions.

The federal government outlined a benchmark for pricing carbon pollution by 2018 (see Annex I). The goal of this benchmark is to ensure that carbon pricing applies to a broad set of emission sources throughout Canada and with increasing stringency over time either through a rising price or declining caps. The benchmark outlines that jurisdictions can implement (i) an explicit price-based system (a carbon tax or a carbon levy and performance-based emissions system) or (ii) a cap-and-trade system. Some existing provincial systems already exceed the benchmark. As affirmed in the Vancouver Declaration, provinces and territories continue to have the flexibility to design their own policies to meet emissions-reduction targets, including carbon pricing, adapted to each province and territory’s specific circumstances.

World Bank, State and Trends of Carbon Pricing 2015

“There is a growing consensus among both governments and businesses on the fundamental role of carbon pricing in the transition to a decarbonized economy.”

The following principles guide the pan-Canadian approach to pricing carbon pollution, and they are broadly based on those proposed by the Working Group on Carbon Pricing Mechanisms:

  • Carbon pricing should be a central component of the Pan-Canadian Framework.
  • The approach should be flexible and recognize carbon pricing policies already implemented or in development by provinces and territories.
  • Carbon pricing should be applied to a broad set of emission sources across the economy.
  • Carbon pricing policies should be introduced in a timely manner to minimize investment into assets that could become stranded and maximize cumulative emission reductions.
  • Carbon price increases should occur in a predictable and gradual way to limit economic impacts.
  • Reporting on carbon pricing policies should be consistent, regular, transparent, and verifiable.
  • Carbon pricing policies should minimize competitiveness impacts and carbon leakage, particularly for emissions-intensive, trade-exposed sectors.
  • Carbon pricing policies should include revenue recycling to avoid a disproportionate burden on vulnerable groups and Indigenous Peoples.

New actions

  1. Provincial and territorial actions on pricing carbon pollution are described in Annex II.
  2. The federal government will work with the territories to find solutions that address their unique circumstances, including high costs of living and of energy, challenges with food security, and emerging economies. The federal government will also engage Indigenous Peoples to find solutions that address their unique circumstances, including high costs of living and of energy, challenges with food security, and emerging economies.
  3. The overall approach will be reviewed by 2022 to confirm the path forward.

Canada’s Ecofiscal Commission

“Carbon pricing is the most practical and cost-effective way to lower GHG emissions while encouraging low-carbon innovation.”

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