Canada has joined a group of ~40 nations that have implemented a comprehensive carbon pricing system. By 2018, each of Canada’s thirteen provinces and territories are required to have either a carbon taxation system or a cap-and-trade system.
Until now, carbon pricing has been a provincial / territorial responsibility. British Columbia has a carbon tax, Ontario & Quebec have cap-and-trade systems, and even Alberta has a carbon levy system for large emitters.
This is a monumental step forward for the country’s contribution to the international climate change agenda. While the Paris climate change agreement required Canada to create a national carbon pricing plan, the strategy also sends a strong message that Canada takes its role in reducing global greenhouse gas emissions seriously.
Canada has a particularly critical role to play on the world stage in terms of the future of the global climate. The northern nation is home to one third of the planet’s boreal forest, which stores 22% of all carbon stored on the earth’s land surface. In Canada, this integral forest accounts for 60% of the country’s landmass.
The forest is often referred to as a ‘carbon sink’, which means that the forest absorbs more carbon dioxide then it gives off, converting the carbon into biomass (trees, peat and soil). With increasing global temperatures resulting in more forest fires, insect infestation and harvesting, the Canadian boreal forest is in danger of shifting the scales towards carbon neutrality and beyond.
Canada should be applauded for taking strong action to implement sweeping carbon pricing. In countries with decentralized power like Canada, provinces and territories are given autonomy over environmental issues, making this federal carbon pricing policy a bold step for the nation.
Carbon pricing is a necessary step in the fight against climate change; forcing us all to take responsibility over what we emit. But have you ever wondered what exactly carbon tax and cap-and-trade are? And which option you’d prefer?
A carbon tax is a direct price on carbon paid by the consumer. The goal of carbon taxation is to change the behaviour of the consumer. For example, a carbon tax experienced at the gas pump encourages the consumer to bike, carpool or take public transit to work as opposed to driving alone.
Cap-and-trade is carbon pricing at the industry level. The government sets a “cap” on the amount of emissions permitted based on industry and size, by means of permits. These permits can then be bought and sold between companies for a government-dictated price. The price of cap-and-trade is still paid indirectly by the consumer. Cap-and-trade allows industry to purchase more carbon allowance from other companies that will emit below their “cap”. This rewards companies that implement carbon saving technologies, as they will receive additional revenue by selling their permits to high emitters.
It is important to note the both carbon pricing systems, carbon taxation and cap-and-trade, involve an aspect of trial-and-error. While economic analysis and the examples of other countries can recommend taxation rates, permit prices or emission caps, the ideal values can only be revealed naturally by the market. The success of a carbon pricing system relies upon annual adjustment of these three parameters, as is included in the Canadian framework with the gradual annual reduction of the number of permits available between 2022 and 2030 for example.
The successful execution of the Pan-Canadian Framework on Clean Growth and Climate Change will mark a milestone in Canadian environmental action. Thrillingly these individual provincial / territorial carbon pricing systems are just the first step. Is it too optimistic to foresee a future with a truly Pan-Canadian carbon emission trading system – similar to that of the world’s largest system in the EU? Whatever the future of Canadian carbon pricing, this policy is certainly a step in the right direction.
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