Prime Minister Justin Trudeau announced a new federal carbon price plan on the floor of the House of Commons this morning. At the same time, federal Minister of Environment and Climate Change, Catherine McKenna, announced details of the plan to her provincial and territorial colleagues at the Canadian Council of Ministers of Environment meeting in Montreal. From what we have seen so far, this looks like a plan that Canadians for Clean Prosperity can support.
The basics of the plan are a federal floor price on carbon that will start at $10 in 2018 and rise to $50 by 2022, a rate of increase compatible with reaching Canada’s commitment (made under the Stephen Harper government) to reduce its emissions by 30% from 2005 levels by 2030. Provinces will be able to implement their own system – either a carbon tax or cap and trade – that meets this price level or achieves equivalent reductions from its cap. Provincial systems will have to cover at least the same type of emissions currently taxed by British Columbia – all combustion emissions from the use of fossil fuels. The federal government will impose its price as a backstop in any province that does not bring in an effective carbon pricing system. But the federal government will not keep any carbon revenues for itself, but will return them to the province or territory that they originate from.
While there are still details to be worked through, the federal plan as described looks like a very positive start. In fact, many elements of it follow the recommendations of Canadians for Clean Prosperity in our submission to Environment Canada’s climate change consultations this spring.
We called for a carbon price that was equal to the highest current carbon prices – British Columbia’s $30 per tonne level to be matched by Alberta in 2018 – and would have a clear schedule of increases. We had proposed starting at $30 in 2018 and increasing by 12.5% per year. This would have reached $48 per tonne by 2022, just a bit lower than the proposed federal floor of $50.
We recommended that coverage should include at least all fossil fuel combustion emissions within a province.
We recommended that carbon pricing should be administered by each province, with a federal price acting as a backstop where provinces did not implement a sufficiently robust system of their own.
We also recommended that the system remain revenue neutral to the federal government, and that the federal government should return any revenues collected from a federal backstop price directly to taxpayers in the province from which those revenues originate.
In all of these areas, the plan announced by the federal government today appears to match the recommendations of Canadians for Clean Prosperity.
Of course there are still details to be determined. We have been clear in preferring a simple, transparent carbon tax to the complexities of cap and trade. But we have also said that a well-designed cap and trade system can have the same effects as a carbon tax. Now it is up to Ontario and Quebec to show that their cap and trade regimes can be as effective as a carbon tax. In particular, they will have to show how their systems do equivalent work when they are importing low cost allowances from California, and will have to ensure that those imported allowances can be credited towards meeting Canada’s climate reduction goals.
Other details will have to be worked through on dealing with competitiveness. B.C.’s carbon tax regime does not protect emissions intensive, trade exposed industries (EITEs) – with partial exceptions for greenhouse growers and cement manufacturers. Ontario and Quebec give their large industries free allowances, while Alberta protects theirs with a system of Output Based Allocations (OBAs). Under a national regime, equivalent measures will have to be developed to ensure that all provinces are protecting their export industries from unfair competition, while still holding them accountable to reduce their emissions footprint.
And of course, we would strongly advocate that the national carbon price be revenue neutral not just to Ottawa but to all levels of government. We are glad that this won’t be a federal tax grab, but let’s not have a provincial tax grab either. Provinces shouldn’t keep the revenues or spend them on their own preferred projects, but should refund 100% of any carbon revenues to businesses and households as tax reductions. This will help keep the economy strong and competitive and let the carbon price, not government regulations and subsidies, do the lion’s share of the work in reducing greenhouse gas emissions.
But these are all concerns that can be dealt with over the coming weeks and months. Overall, Canadians for Clean Prosperity thinks that the federal government has introduced a smart plan that will go a long way towards giving Canada an effective national carbon price regime that will actually lower emissions. Now let’s see if all governments have the wisdom to return those carbon revenues to taxpayers to keep our economy strong as well.