As part of the Pan-Canadian Framework on Clean Growth and Climate Change, the federal government had outlined the Pan-Canadian Approach to Pricing Carbon Pollution, a national carbon pricing system with mandatory benchmarks for each province. Most provinces, representing 97% of the population, already have, or are in the process of designing, their own systems – British Columbia, Alberta, Ontario, Quebec, and Nova Scotia (in process). On May 18, the Government of Canada addressed the remaining 3% – most notably in the province of Saskatchewan – with the release of its Technical Paper on the Federal Carbon Pricing Backstop .
The “Backstop” refers to the fact that the policies will only apply to provinces that do not have a carbon pricing system of their own in place by 2018. The proposal is composed of two parts: a levy on fossil fuels, and a cap and trade system, patterned after Alberta’s output-based allocation system, to price pollution from industry. The levy system would include solid, liquid and gaseous fossil fuels: gasoline, diesel fuel, natural gas, coal and coke – and notably, aviation fuel. Rates would initially be set for 2018 to 2022, progressing with $10 per tonne increments annually from $10 per tonne of CO2-equivalent (CO2e) in 2018 to $50 per tonne in 2022. The federal commits to return direct revenues from the carbon levy to the jurisdiction of origin, but there is flexibility about how the provinces can redirect that revenue.
UPDATE: The EcoFiscal Commission released a helpful blog post on May 24: Explaining Output-Based Allocations (OBAs), with a promise of a further explainer about the pitfalls of OBAs, to be released soon.
Public comments about the proposals are accepted until June 30, 2017, at Carbonpricingemail@example.com and will be used to design the final carbon system and enabling legislation and regulations. A sampling of reaction (below) gives the government high marks for protecting Canadian competitiveness while reducing emissions.
“Is Canada’s carbon-pricing policy striking the right balance?” (May 18) in the Globe and Mail is a general affirmation of the federal proposals by three experts from varied points of view: Christopher Ragan (Chair of the Ecofiscal Commission), Peter Robinson (CEO of the David Suzuki Foundation), and Steve Williams ( CEO of Suncor Energy). A business response, in a press release from TD Economics, covers similar ground: “ Feds Stick to their carbon- pricing guns” (May 18). It states: “Botton Line: Carbon pricing is the most efficient way of reducing emissions, and today’s announcement should help Canada achieve meaningful emissions reductions. However, follow-through post-2022 will be crucial to achieving the 2030 target. The details of the carbon pricing backstop strike a good balance, providing clear incentives for emissions reduction while taking competitiveness issues into account, recognizing that a large industrial base cannot be “turned on a dime” and will continue to face competition from non-carbon priced jurisdictions.”
From environmental advocacy groups : In “Five things to know about Ottawa’s carbon pricing plan” , Clean Energy Canada highlights the similarities of the Alberta and Saskatchewan economies, and commends the output-based credit system, saying “there’s no question that a made-in-Alberta approach will also fit Saskatchewan’s economy very well.” Clean Energy notes that the open question of distribution of revenues will cause much future debate, as will working out the details of the allocations for heavy industry, due by 2019.
The Pembina Institute response, “Ottawa taking carbon pricing cues from provinces” also commends the output-based allocation system, and concludes: “It’s worth taking a moment to celebrate how far we’ve come as a country – in large part due to the vision and ambition of provincial premiers – and to reflect on how to maintain this momentum despite choppy international waters.”
The elephant is the room that everyone is talking about is the anticipated court challenge from the government of Saskatchewan, whose Premier Brad Wall has stated that the federal government lacks the constitutional authority to enact a federal carbon price, and who likened the Technical paper to “a ransom note.” The Globe and Mail summarizes the tension in “Ottawa, Saskatchewan brace for battle over carbon pricing” . The Pembina Institute has published a Q& A interview with Professor Nathalie Chalifour of the University of Ottawa, who also wrote “The feds have every legal right to set a carbon price” in October 2016 in iPolitics .
Saskatchewan’s preferred route to emissions reduction was clearly laid out in its White Paper on Climate Change released in October 2016, which states: “We should be focusing our efforts on innovation and adaptation, not taxation” – “innovation” largely meaning Saskatchewan’s investment in carbon capture and storage. And while CBC reports that Saskatchewan environmental groups are backing the federal Technical paper, there is widespread support for the Premier’s opposition. According to a CBC report in March, the Saskatchewan Taxpayers Federation, the Saskatchewan Heavy Construction Association, and the United Steelworkers Local 5890, sent Prime Minister Trudeau a joint letter outlining how a federal carbon tax would hurt Western Canada. In a CBC report on May 19, ‘You can’t buy a Prius and move dirt’: Critics say carbon tax will punish industry , those two industry groups make the case that “there aren’t green alternatives for building roads, hauling trailers and working with heavy machinery.”