LASER TALK: Output-Based Pricing Systems 

LASER TALK: Output-Based Pricing Systems 

WHY NOT BORDER CARBON ADJUSTMENTS: Only federal governments can enact border carbon adjustments (BCAs) and only if they have a fully functioning federal carbon price. Additionally BCAs take time to set-up. As well, they are tariffs, thus, diplomatically speaking, our trading partners will need at least two years notice to prepare for border carbon adjustments.  Thus, while establishing a national carbon price we have to maintain competitiveness and reduce carbon leakage without border carbon adjustments.

HOW:  Industries that qualify can sign-up for output-based pricing systems for their carbon emissions. Each qualifying industry has formula for quantifying their greenhouse gas output in relation to best in their class – resulting high-performing industries paying less in carbon taxes. Thus, there is a price signal to encourage industry reduce emissions.

RECENT CHANGES: On Wednesday, August 1, 2018, changes were made to the amount of carbon pricing revenues the federal government plans to return to Emission-Intensive and Trade-Exposed (EITE) sectors in order to protect their competitiveness and avoid carbon leakage. Previously, it had planned to return 70% of what it collected from these sectors. Now it plans to return 80%, or 90% if the sector is particularly vulnerable.

OUR RECOMMENDATION: Canada’s carbon pricing benchmark price must be economy-wide and must continue to rise beyond 2022 every year until 90% reduction from 2005 levels is achieved. OBPSs will not encourage the necessary radical industrial transformation. OBPS are a baby step in the right direction, but they must be nurtured into Border Carbon Adjustments in order to face the real-world challenge of global warming. CCL recommends that Output-Based Pricing Systems should be temporary and ultimately replaced with border carbon adjustments.

REFERENCES
For a deep dive into Output-Based Pricing Systems:  see the September 2018 Action Sheets

 

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