Monday, December 5, 2016

Alberta Pledges to Implement Canadian Carbon Tax

With Alberta joining, four of Canada’s most populous provinces either already have or are introducing some kind of carbon price or carbon cap and trade program. Last month Prime Minister Justin Trudeau announced a minimum Canadian federal price on carbon. The initial price will be a minimum of $10 (Canadian) per metric ton (“tonne”) of CO2, and it will increase annually by $10/tonne to reach $50 in 2022 when it will be reviewed. This announcement was made by the Prime Minister in leading off parliamentary debate on the Paris climate change agreement Monday, making the case for Canada to cut greenhouse gas emissions by 30% from 2005 levels by 2030. (In Parlimentary debate the Prime Minister leads and closes the debate.) The announcement came without warning.

Though Prime Minister Trudeau has long promised that Ottawa would impose a minimum carbon price on provinces unwilling to adopt their own system, but in his speech he effectively seized the leadership from the province premiers, who have insisted on the right to regulate carbon emissions as they see fit. Canada’s 10 provinces will need to meet that minimum, or exceed it, by using either a carbon tax or achieving a comparable emissions reduction through a cap-and-trade system.

The Prime Minister said he will convene a first ministers’ meeting on December 8th with the aim of concluding an all Canada climate plan, which would include carbon pricing and other measures. A first minister’ meeting is a meeting of the provincial and territorial premiers and the Prime Minister. Several provinces and territories reacted angrily. Three of the environment ministers walked out of the federal-provincial climate talks after Mr. Trudeau’s unilateral announcement in the House of Commons. Most vocal in his protest was Saskatchewan Premier Brad Wall who was reported to have called the carbon tax decision is a betrayal of previous promises and assurances and that the tax would devastate his province’s economy.

However, last Tuesday, The Trudeau government approved Kinder Morgan Canada Inc.’s $6.8-billion Trans Mountain pipeline, which would nearly triple capacity on an existing line from Edmonton to Burnaby, B.C. to about 900,000 barrels per day. This is an alternative route to the Keystone Pipeline to move the Canadian oil sands out of Canada via Canada’s Pacific coast. Now Alberta has committed to phase in a $50-per-tonne carbon tax after the federal government approved the pipeline.
In addition Canada’s westernmost province of British Columbia already prices carbon at C$30 per metric ton. Canada’s two most populous provinces, Ontario and Quebec, are pursuing cap-and-trade systems, which Prime Minister Trudeau said will be deemed adequate if they achieve the same emissions reductions as the federal minimum price would achieve.

In a carbon tax or fee as in the Canadian federal program the price on carbon pollution provides an incentive for everyone, from industry to households, to be part of the solution. A carbon tax can be very simple. It can rely on existing administrative structures for taxing fuels and can therefore be implemented in just a few months. Ultimately, the critical factor in reducing carbon emissions is the strength of the economic signal. A stronger carbon price will push more growth low carbon, renewable energy and will encourage adoption of greener practices.

While a cap-and-trade system could achieve the same goals, but in practice they tend to be much more complex. More time is required to develop the necessary regulations, and they are more susceptible to lobbying and loopholes. Cap-and-trade also requires the establishment of an emissions trading market and they become expensive to operate and monitor. I support a carbon tax, and look forward to see how the system ends up operating in Canada. The U.S. based Carbon Tax Center says that their computer model suggests that a U.S. carbon tax at that rate would reduce CO2 emissions by 12-13 % below “otherwise” emissions (without a carbon price) in 2022 in the United States.

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