Carbon pricing in Canada: Recent research, and implementation in Alberta and Ontario

Research about carbon pricing continues in the effort to implement the Pan-Canadian Framework.   In November,  Carbon Pricing and Intergovernmental Relations in Canada was released by the Institute for Research on Public Policy,  evaluating  the federal government’s national carbon pricing plan to that point (i.e. before the announcement of the Pan-Canadian Framework ), with an emphasis on the flexibility required for provincial differences. It then discusses the intergovernmental coordination in other policy fields in Canada ( income taxes, goods and services taxes, and environmental standards) as a possible model for carbon pricing.

As part of the Pan-Canadian Framework in December , the comprehensive  Final Report of the Working Group on Carbon Pricing Mechanisms  was released, providing an overview of Canadian and international practice, as well as a discussion of principles for design and implementation.

Finally, a report about British Columbia, the home of Canada’s first carbon tax. A  December report modelled the impact of the 2016 provincial Climate Leadership Plan and a federal carbon price on GHG emissions. It concludes that even  if all provincial policies were implemented,  B.C.’s emissions will exceed the targets for 2020 and for 2050. The report provides a breakdown of emissions by sector and forecasts that the largest single source of emissions in 2050 will be from shale gas operations and liquefied natural gas projects.  Modelling the Impact of the Climate Leadership Plan and Federal Carbon Price on British Columbia’s Greenhouse Gas Emissions  was commissioned by Clean Energy Canada,  the Pacific Institute for Climate Solutions and the Pembina Institute, with analysis by Navius Research.

In the meantime, two provinces have moved ahead with previously announced policies. Alberta’s carbon levy came into effect on January 1, 2017, cushioned by the government press release of  December 31  titled  “Carbon levy supports diverse, green economy and jobs”  which summarized the details. The levy will be charged on transportation and heating fuels  – diesel, gasoline, natural gas and propane – at a rate of $20 per tonne, increasing to  $30 per tonne in 2018.  As further explained on a government website  , farmers and First Nations are generally exempt; a 33 per cent small business tax rate cut will help offset costs for small businesses, and the direct and indirect costs to consumers  are estimated. Rebates started flowing for a majority of Alberta households on January 5, with a payment  of $200 per year for a single adult earning up to $47,500 per year , and $300 for a couple earning up to $95,000 per year.   In addition to the government explanation, see “What you need to know about Alberta’s Carbon Levy”   from the Pembina Institute ,  or a CBC  interview with Andrew Leach , generally considered the architect of Alberta’s climate plan . “The Cost of Carbon Pricing in Alberta and Ontario”, by professors Trevor Tombe and Nic Rivers, appeared in Maclean’s magazine (Jan. 4). It explains the differences in the two approaches and explains the methodology for their estimate that  “Overall, for the average Alberta and Ontario household in 2017, direct costs will likely be on the order of $150 to $200 annually and indirect costs will add an additional $80 to $100 or so.”  The conclusion:  “heated political rhetoric that suggests carbon pricing will lead to skyrocketing price increases throughout the economy is misplaced at best and misleading at worst.”

Media rhetoric seems to have been directed at Alberta, rather than Ontario, where the cap and trade system, a cornerstone of the Climate Action Plan , also took effect on January 1, 2017.  The government’s Explainer is here , and estimates that “it will cost the average Ontario household about $13 more per month to fuel a car and heat a home in 2017”.  The government also estimates  proceeds of $1.9 billion per year , which must be re-invested to reduce GHG emissions, such as social housing retrofits, public  transit, and electric vehicle incentives.  See details of the related Green Investment Fund here.  The 2016 Annual Greenhouse Gas Progress Report  (November 2016) of Ontario’s Commissioner of the Environment  offers an explanation of how the system works, and discusses pitfalls, solutions, the need for transparency, and the likelihood that the system will deliver the scale of GHG reductions promised.

 

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