Is Trudeau's Carbon Price Enough?

Carbon Tax

Canada’s proposed carbon price is not high enough, but it’s an important start. If it’s combined with tighter regulations on greenhouse gas emissions it could start making a dent in Canada’s heavy carbon footprint.

For those of us who have been waiting for years for Canada’s federal government to price carbon, it’s good to see Trudeau’s Liberal party make good on its promise, made in the election campaign a year ago and reaffirmed in Paris in December, to act on climate change.

For almost a decade, the previous Conservative government under Stephen Harper resisted making polluters pay, even though many oil companies, like tarsands giant Suncor Energy and Calgary-based Cenovus, publicly supported emissions pricing.

The oil and gas industry saw the writing on the wall long ago and recognised that, in an age of climate change, a carbon tax is actually good for business. Their products may be climate-wrecking but carbon pricing gives the corporations some cover, something that they can put in television and newspaper advertisements, something that allows them to present themselves as ecologically-aware, global citizens.

Obviously, a high price on carbon will strain any business that depends on digging up and selling fossil fuels. But too low a price on carbon opens industry up to ridicule when it tries to present itself in advertising campaigns as environmentally responsible, as the Alberta oilsands have in the past (see video).

Many of those companies have been factoring in a shadow price on carbon in their financial decisions for years. One study of seven companies showed that price can range from C$15 per tonne to C$68 per tonne.

Canada’s federal carbon pricing framework will start at the low end of expectations at C$10 per tonne in 2018, rising C$10 each year until 2022:

  • 2018: C$10 per tonne of carbon
  • 2019: C$20
  • 2020: C$30
  • 2021: C$40
  • 2022: C$50

Trudeau’s carbon price is actually a floor price: it’s up to each of Canada’s 10 provinces and 3 territories to develop its preferred carbon pricing system within the federal framework, whether it’s a carbon tax as in British Columbia and Alberta, or cap and trade like Ontario and Quebec have adopted.

Crucially, the Canada-wide carbon pricing system will be revenue-neutral to the federal government. The revenue stays in the province of origin. Provinces choose how to spend the money raised. They could use it to make tax cuts, as British Columbia uses most of its C$1.2-billion a year carbon tax revenue, or for carbon reduction initiatives like in Alberta.

The British Columbia Picture

When Canada's carbon price starts in 2018, it will be ten years since British Columbia, under B.C. Premier Gordon Campbell, launched its carbon tax.

B.C.’s carbon tax also started at C$10 in 2008 and rose C$5 a year to its current level of C$30 in 2012.

It has been frozen at C$30 ever since thanks to Campbell’s successor, the fossil-fuel-friendly Christy Clark.

At C$30 and, importantly, not rising, the impact of B.C.’s carbon tax is waning.

A C$30 price on a tonne of carbon breaks down to:

  • 6.67 cents on each litre of gasoline
  • 7.67 cents on each litre of diesel
  • 5.70 cents on each cubic metre of natural gas

It needs to be raised and raised much higher. At least, that was the recommendation of Clark’s own, handpicked Climate Leadership Team (CLT).

In its report (see PDF) the Climate Leadership Team said: “increases in the range of C$10 per tonne per year will be required through to 2050 in order to achieve B.C.’s 2050 targets.”

The CLT also recommended that the tax cover all of B.C.’s carbon emissions. Only combustion emissions (about 70%) are covered by the tax right now.

Not surprisingly, given her desperation to build a Liquidified Natural Gas (LNG) industry in B.C., Clark found the recommendations of her advisory team unacceptable. She says that B.C. must wait for the rest of Canada “to catch up”.

Which means that without a change of government next year, B.C.’s carbon tax will likely remain at C$30 until 2020.

Carbon Tax Alone Not Enough

It needs to be said, and the federal Environment and Climate Change Minister, Catherine McKenna, has been saying, that a carbon tax - especially a low carbon tax - is not enough.

Canada committed in Paris to reducing emissions by 30% below 2005 levels by 2030 (Stephen Harper’s target). The rising carbon price sends a signal to markets, but with this low a price, other carbon reducing levers will need be pulled: the “flexible” regulations or “implicit carbon pricing” as environmental economist Mark Jaccard calls it.

In a new climate action report, Jaccard and co-authors Mikela Hein and Tiffany Vass at Simon Fraser University write that, for Canada to keep its Paris commitment using carbon pricing alone, we would need a C$200 per tonne price on carbon. Jaccard's team illustrates how a set of "flexible regulations" can achieve the same impact by 2030.

It's important to bear in mind that the voluntary pledges made by all parties in the Paris Agreement guarantee we will break the 2 °C limit. Yet you have to start somewhere.

Trudeau’s Liberals have been sending mixed signals about their enthusiasm for using regulations to reduce emissions.

On the one hand, they are investing in public transport infrastructure and looking at energy and transport regulation, but also talk at every opportunity about “getting Canadian resources to market”, meaning getting pipelines built from the Alberta tar sands to tidewater. Expanding and prolonging the lifespan of Canada’s fastest growing source of GHG emissions takes us in the wrong direction.

What's more, just days before its carbon price announcement, the federal government approved the controversial Pacific Northwest LNG project which, if built, would have a huge carbon footprint - using up as much as 77% of B.C.’s 2030 emissions target.

It’s a project that Premier Christy Clark has been pumping up for a long time, with her government even providing multi-decadal tax breaks for the project’s proponent, Petronas. She redefined B.C.'s "clean energy" regulation so that LNG plants can burn natural gas.

Maybe, as B.C. Green Party leader Andrew Weaver has been saying for years, Clark's LNG plan for B.C. is “a pipe dream”, not economically viable given the global glut in natural gas.

Certainly, the prospect of a carbon tax that rises over many years will weaken the appetite of investors for carbon intensive projects.

Which begs the question, will Canada's federal government keep raising the carbon price floor after 2022 when it reaches C$50 per tonne?

“The overall approach will be reviewed,” says the government, “to ensure that it is effective and to confirm future price increases. The review will account for actions by other countries.”

2022 is a long way off. Climate action globally could accelerate or fall back. There could be technological breakthroughs, a recession, or governments could simply carry on promising much but doing little.

Hopefully, in 2022, a re-elected Trudeau will not be emulating Christy Clark, waiting for the rest of the world to “catch up”.

Where do the B.C. parties stand on the carbon tax?

Andrew Weaver has long been a strong advocate for carbon pricing. Weaver issued a statement, immediately after Trudeau's announcement, welcoming the federal initiative but added “British Columbia should develop its own aggressive timeline for increases to its carbon tax”.

The B.C. NDP’s Environment critic George Heyman told The Tyee the party is considering the B.C. Climate Leadership Team’s recommendations and preparing a climate plan to be released this fall which will include making the carbon tax “fairer for low and middle income families, as well as people in rural B.C.”.

The B.C. Conservative Party is re-evaluating its previous position of dismantling the carbon tax, and some of the candidates in its leadership race have a more favourable view of the carbon tax than in the past.