LASER TALK: Canada’s carbon pricing policy – The Greenhouse Gas Pollution Pricing Act

LASER TALK: Canada’s carbon pricing policy – The Greenhouse Gas Pollution Pricing Act

Laser Talk: Canada’s Carbon Pricing Policy

In June 2018, the Greenhouse Gas Pollution Pricing Act achieved Royal Assent and became law of the land in Canada. All provinces and territories must have a carbon pricing policy of at least $20 tonne by January 1, 2019 raising $10 per tonne each year until 2022, with flexibility for provinces to have carbon taxes or an equally stringent cap and trade system. How equivalencies between the carbon pricing policies is determined is unclear. In jurisdictions that do not have carbon pricing policies, the Federal Backstop Carbon Pricing Policy will apply.

There are two elements of the federal carbon pricing policy:

1. A charge on fossil fuels that is generally payable by fuel producers or distributors, with rates for each fuel that are equivalent to $10 per tonne of carbon dioxide equivalent (CO2e) in 2018, rising by $10 per year to $50 per tonne CO2e in 2022. The carbon fee for the federal backstop policy is revenue-neutral.  The revenue is recycled back to the citizens in their income taxes under the line 449 “climate action incentive“. CCL also recommends the price be economy-wide and rise past 2022. Of note, 80% of households come out ahead, a finding confirmed by the Parliamentary Budget Office and others.

2. For businesses and industries that qualify, they will enroll in an Output-based Carbon Pricing System. They will pay a carbon price based on their emissions intensity relative to a best in the class of their industry and surplus credits will be traded. This system will send a market signal because good actions are rewarded. This component of the act protects emissions-intensive trade-exposed industries from trade pressures and carbon leakage. However, it may not be stringent enough. CCL recommends that the carbon price should be economy-wide and thus the Output-Based Pricing System should be temporary, and ultimately replaced with Border Carbon Adjustments.