State of carbon pricing in Canada, with recommendations for improvement

The Canadian Institute for Climate Choices was commissioned by Environment and Climate Change Canada to undertake an assessment of carbon pricing in Canada. The resulting report, The State of Carbon Pricing in Canada was released in June along with an accompanying detailed technical report, 2020 Expert Assessment of Carbon Pricing Systems. Focusing on the design of carbon pricing systems across all jurisdictions (and not measuring performance), the authors identify five key challenges: Not all policies apply to the same emissions; Not all policies have the same price; Not all policies impose the same costs on industry; Almost all policies lack transparency about key design choices and outcomes; and Long-term and transparent price signals are typically absent from programs.  

Their  recommendations for improvement are:

  • Develop a common standard of emissions coverage for carbon pricing across all jurisdictions.
  • Remove point-of-sale rebates that are tied to fuel consumption: such rebates should be replaced with other approaches such as direct rebates, income tax reductions, or abatement technology subsidies.
  • Define a “glide-path” to better align and increase average costs to large emitters
  • Engage Indigenous people in carbon pricing – at present, some communities are exempt and some are subject to full carbon costs
  • Ensure continuous improvement through more transparency and more independent evaluation.

A related blog, “3 Maps That Show Why Carbon Pricing in Canada Needs a Tune-Up”  summarizes the differences in carbon pricing design choices across the country, in a less formal style. 

Canada’s Supreme Court affirms federal government’s constitutional right to enact carbon pricing legislation

On March 25, the Supreme Court of Canada released a majority decision stating that the federal government of Canada was within its constitutional rights when it enacted the 2018 Greenhouse Gas Pollution Pricing Act — which required the provinces to meet minimum national standards to reduce greenhouse gas emissions. The decision enables the federal government to move on to more ambitious climate action plans, since it ends a two-year battle with the provinces, and affirms the importance of the climate change issue. The majority decision states that national climate action “is critical to our response to an existential threat to human life in Canada and around the world.”   Summaries and reaction to this hugely important decision include an Explainer in The Narwhal , and “Supreme Court rules federal carbon pricing law constitutional” (National Observer) . Mainstream media also covered the decision, including a brief article in the New York Times which relates it to U.S. policy climate.

The Canadian Labour Congress issued a press release “Canada’s unions applaud Supreme Court decision upholding federal carbon pricing” – pointing out that the carbon tax is only one piece of the puzzle in reducing GHG emissions. Unifor emphasized next steps, calling on the provincial premiers of Ontario, Saskatchewan and Alberta, and the federal Conservative leader, to “stop complaining” and devise their own climate action plans. Similar sentiments appeared in the reactions of other advocacy groups: for example,  Council of Canadians;  the Pembina InstituteClean Energy Canada, and the Canadian Association of Physicians for the Environment (CAPE) .

Political reactions

The reaction and explanation of the case from the federal government is here. The CBC provides a survey of political reaction here. Ontario, Saskatchewan, and Alberta were the three provinces who lost their Supreme Court case: in a press release,  Alberta’s Premier Jason Kenney pledged that his government will continue to “fight on”, and will now begin to consult with Albertans on how to respond to the court’s decision – as reported in the National Observer, “Alberta has no carbon tax Plan B, was hoping to win in court: Kenney” (March 26) . Kenney further stated,  “We will continue to press our case challenging Bill C-69, the federal ‘No More Pipelines Law,’ which is currently before the Alberta Court of Appeal.”  [Note Bill C-69 is actually titled An Act to enact the Impact Assessment Act and the Canadian Energy Regulator Act… and was enacted in June 2019]. Ontario’s “disappointment” is described in this article in the Toronto Star and Saskatchewan’s government reaction is described here by the CBC .   A sum-up Opinion piece appears in The Tyee: “Sorry Cranky Conservatives! Carbon Pricing Wins the Day” (March 29).

Updated: Supreme Court upholds legislation underpinning Canada’s carbon pricing system

On March 25, majority of Canada’s Supreme Court ruled in what  EcoJustice calls a “monumental” decision, that the federal Greenhouse Gas Pollution Pricing Act does not violate the Canadian constitution. The Summary decision is available at the Supreme Court website as of March 25, here. The Justices noted that global warming causes harm beyond provincial boundaries and that it is a matter of national concern under the “peace, order and good government” clause of the Constitution. The Justices further noted that the term “carbon tax” is a misnomer, and the fuel and excess emission charges imposed by the Act were constitutionally valid regulatory charges and not taxes.

The federal government’s constitutional right to set the framework for pollution pricing lies at the heart of our national policies to fight climate change – originally, through the Pan-Canadian Framework on Clean Growth and Climate Change (2016) and now, through the Healthy Environment Healthy Economy Plan released in December 2020, which proposes to raise the existing carbon tax to $170 per tonne by 2050.

The Greenhouse Gas Pollution Pricing Act allows the federal government to impose a carbon price, a “backstop”, in any province or territory which fails to design their own policies to meet the federal emission reduction targets. The provinces of Saskatchewan, Ontario, and Alberta all filed separate challenges to the federal jurisdiction – with the provincial appeals courts in Saskatchewan and Ontario both upholding the federal government’s constitutional right to enact the law. In February 2020, the  Alberta Court of Appeal upheld the provincial challenge, and appeals to the Supreme Court from all three provinces were heard in Fall 2020. A more complete chronology of the legal cases is here .

The Supreme Court decision is summarized here – with a link to the full Decision (the Court notes that the Full Decision is so lengthly that it may cause an error message when trying to download it).

Roadmap for U.S. Decarbonization emphasizes job creation, equity in Transition

A Committee of Experts in the United States collaborated to produce a sweeping policy blueprint for how the U.S. can reach net-zero carbon emissions by 2050.  Accelerating Decarbonization of the United States Energy System was published by the U.S. National Academies of Sciences, Engineering and Medicine in February 2021, and discusses how to decarbonize the transportation, electricity, buildings, and industrial sectors.  The Overview emphasizes goals of job creation and equity, with a need to build social license.  This aspect of the report is drawn out in “We risk a yellow vest movement”: Why the US clean energy transition must be equitable”  a summary which appeared in Vox.

From the report overview

“The transition represents an opportunity to build a more competitive U.S. economy, increase the availability of high-quality jobs, build an energy system without the social injustices that permeate our current system, and allow those individuals, communities, and businesses that are marginalized today to share equitably in future benefits. Maintaining public support through a three decade transition to net zero simply cannot be achieved without the development and maintenance of a strong social contract. This is true for all policy proposals described here, including a carbon tax, clean energy standards, and the push to electrify and increase efficiencies in end uses such as vehicle and building energy use. “

The report recommendations are summarized in this  Policy Table, and in a 4-page Highlights document.  These include:   Setting an emissions budget for carbon dioxide and other greenhouse gases • Setting an economy-wide price on carbon (though a low price is set “because of concerns about equity, fairness, and competitiveness”) • Establish a 2-year federal National Transition Task Force “to evaluate the long-term implications of the transition for communities, workers, and families,  and identify strategies for ensuring a just transition”.• Establish a new Office of Equitable Energy Transitions within the White House to act on the recommendations of the task force, establish just transition targets and  track progress • A  new independent National Transition Corporation. • A new Green Bank, initially capitalized at $30 billion, to ensure the required capital is available for the net-zero transition and to mobilize greater private investment • A comprehensive education and training initiative “to develop the workforce required for the net-zero transition, to fuel future innovation, and to provide new high-quality jobs” • Triple federal investment in clean energy RD&D at the Department of Energy over the next ten years,  as well as the support for social science research on the socio-economic aspects of advancing the transition.

The full report, 210 pages, is available free for download from this link  (registration required).

Favourable reaction by Canadians to an updated Climate Plan -including a carbon tax rising to $170 per tonne by 2030

On December 11, the federal government released its highly-anticipated new climate plan, A Healthy Environment and a Healthy Economy, announcing 64 policy measures costing $15 billion. The Plan addresses energy, energy efficiency, infrastructure,  transportation emissions, the Clean Fuel Standard, an adaptation strategy – and a centrepiece policy to increase the carbon tax by $15 a tonne each year for the next eight years, as summarized by the CBC in  “Ottawa to hike federal carbon tax to $170 a tonne by 2030 “. Taken with the proposed Canadian Net-Zero Emissions Accountability Act currently before Parliament, which formalizes Canada’s target of net-zero emissions by the year 2050, A Healthy Environment and a Healthy Economy lays out the most specific path forward for Canada since the 2016 Pan-Canadian Framework in 2016.

A Backgrounder is here,  and specific initiatives are explained in Annex documents here.  One missing piece, as pointed out in Unifor’s reaction to the new Plan: the previously-promised Just Transition Act.   Also missing: the slightest notice by the international press, even the normally climate-vigilant Guardian in the U.K.  Reaction within Canada was strong, and ranged widely (compiled by the CBC here). In the mainstream media, the conservative-leaning Globe and Mail  approved in its Editorial:  “Justin Trudeau goes all in on the carbon tax. It’s the right thing – for the environment, and the economy”. Political writer Paul Wells uses similar language and  confesses to “startled admiration” in “On climate, at last, Justin Trudeau is all in” in Maclean’s magazine . The National Observer published  “Trudeau goes it alone with new climate plan, proposes carbon price hike”, drawing the contrast with the 2016 Framework, which was drafted in consultation with all the provinces.  The Energy Mix  is less approving in “With $170/Tonne Carbon Price, $15b In New Spending, Canada’s 2030 Carbon Target Still Falls Far Short”  (Dec. 14), which summarizes reaction from environmental groups.

Reaction from Labour and Environmentalists:

Like Unifor , the Canadian Labour Congress highlights the need for more transition measures in the new Plan, and states: “Labour will be looking to the federal government to make good on its commitment to supporting local job creation, skills training, apprenticeships and decent wages for workers, especially to those historically underrepresented in the skilled trades sector, including Indigenous workers, racialized workers and women…. Canada’s unions welcome the government’s emphasis on domestic manufacturing, including developing Canadian supply chains for low-emission building materials, clean tech, and aerospace and automotive investments, and leveraging the power of public procurement. Additionally, unions are noting the crucial commitments made today towards bringing Indigenous communities into the process.”

The International Brotherhood of Electrical Workers Canada (IBEW) commends the Plan and states:  “The highly skilled members of the IBEW are trained and ready to take on these important jobs, and the government’s commitment to investing in green buildings and retrofits, electrified public and private transportation and grid modernization will require exactly the sort of knowledge and skills that IBEW members demonstrate on the job every day.”

From the Climate Action Network Canada, which includes both labour and environmental groups:  “… this plan does not change the fact that Canadian governments continue to double down on fossil fuels, subjecting workers and our economy to the ever-increasing volatility of oil and gas markets…. It’s good to see policies that can, if implemented quickly and with the greatest stringency possible, take Canada’s climate ambitions further than our current insufficient Paris pledge – reducing emissions up to 40% below 2005 levels by 2030. It is also good to see a significant investment of $15B in climate action. However, these numbers pale in comparison to commitments being made by our closest trading partners in the EU and the U.S. (under a new Biden administration)”.

Similarly, from Environmental Defence: “The climate action plan released today has a more comprehensive suite of climate policies than in the past and we welcome the meaningful escalation of the retail portion of the carbon price. We’re also pleased about the portion of the $15 billion investment that is not in effect yet another fossil fuel subsidy. But that amount, which is a small fraction of what other countries are doing on a per capita basis, clearly cannot get the job done. In fact, Canada should be investing $270 billion if it was following the level of ambition of the US or EU.”  West Coast Environmental Law agrees with these points, and also  states:  “While we applaud much of this climate plan, the government continues to ignore the reality that climate leaders don’t build oil pipelines. The recent analysis released by Canada’s Parliamentary Budget Officer confirms that the Trans Mountain pipeline will lose money if any climate action is taken, let alone the action promised in this plan. If Canada is serious about acting on climate change, the government must cancel this ill-conceived project once and for all.”

Economists applaud carbon tax initiative

The federal government announcement includes a 4-page Annex document about its carbon pricing proposals. The carbon tax will rise by $15 per tonne after 2022 until 2030, when it will reach $170 per tonne. The government is banking on a favourable decision by the Supreme Court of Canada when it rules on the constitutionality of the existing federal carbon tax in 2021. In a politically shrewd change from current practice, carbon rebates will be distributed to households on a quarterly basis, and as now, most households will receive more in rebates than they pay out.

Mainstream economic voices support the carbon tax:  The Canadian Institute for Climate Choices calls the plan “a big deal”, and says: “The government’s emissions projections under a carbon price that rises by $15/tonne per year is consistent with analysis from the Parliamentary Budget OfficeClean ProsperityCanada’s Ecofiscal Commission, and our own principal economist, Dave Sawyer. This is a policy that can deliver on the emissions reductions it promises.” Clean Prosperity states “This is a bold, brave, and wise move that will set Canada on the path to decarbonization. It sends a clear message to investors around the globe that Canada is serious about climate action.…. This was not an easy choice, but it’s the right choice. The government is wisely adopting a low-cost policy option that is good for the economy.”   And Merran Smith, speaking for Clean Energy Canada, calls it a “comprehensive and honest plan…. historically and globally significant. The plan will retool and position Canada’s economy to be increasingly competitive in a low-carbon world.”