Updating carbon pricing in Canada: PBO Report , Supreme Court case, and provincial opt-outs

On October 8, the Office of Canada’s Parliamentary Budget Officer (PBO) released its latest report on carbon pricing, Carbon pricing for the Paris target: Closing the gap with output-based pricing . The report concludes that the government’s existing and announced policies and measures – including a carbon tax which rises to $50 per tonne in 2022 and an Output-Based Pricing System (OBPS) will not be sufficient to allow Canada to meet its emissions target under the Paris Agreement – 30 per cent below 2005 levels by 2030. The PBO models three complex scenarios to estimate that the level of the carbon price necessary to achieve the Paris target ranges from $67 per tonne to between $81 and $239 per tonne.

A critique by Clean Prosperity , a Toronto NGO focused on carbon tax research and education,  finds two of the PBO scenarios “unrealistic” and calls for a fourth approach, which transitions the industrial output-based pricing system to economy-wide pricing plus a border carbon adjustment. Clean Prosperity concludes:  “The bottom line is that carbon pricing works and should continue to increase after 2022 at roughly the same level as today in order to help us meet our Paris targets.”  Clean Prosperity promises to  release its own modelling of such an approach “in the near future”.

The report was released while a constitutional challenge to the federal carbon pricing system is still before the Supreme Court, and does not reflect the September 20 announcement that “The Government of Canada will stand down the federal carbon pricing system for industry in Ontario and New Brunswick as of a date in the future.” (that date and formal change to the systems to be determined in consultation with each province.) 

Smart Prosperity (a University of Ottawa research centre)  posted a blog and a report Ontario’s Options: Evaluating How Provincial Carbon Pricing Revenues Can Improve Affordability on October 8 .  Smart Prosperity has published a number of relevant working papers, including : Environmental Taxes and Productivity: Lessons from Canadian Manufacturing  (April 2020);  Border Carbon Adjustments in Support of Domestic Climate Policies: Explaining the Gap Between Theory and Practice (Oct. 2019) and Do Carbon Taxes Kill Jobs? Firm-Level Evidence from British Columbia in March 2019.  Canada’s Ecofiscal Commission also researched and published numerous reports (archived here ) before it closed its doors in November 2019.

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