It’s clear we’re running out of options to prevent an environmental catastrophe. According to a very scary report from the UN climate change panel, if we don’t act now we face a worldwide disaster as early as 2040 that includes worsening food shortages, droughts, flooded coastal cities, more California-type wildfires, and a mass-die off of coral reefs.
In the 2019 federal election, about two-thirds of voters supported a party in favour of a carbon tax. The governing Liberals have vowed to enforce the carbon tax. But, unsurprisingly, this matter continues to be controversial and complicated—with Ontario premier Doug Ford vowing to pursue the legal fight on carbon tax and Alberta premier Jason Kenney saying he opposes taxing everyday consumers.
The federal carbon tax began in Ontario, New Brunswick, Saskatchewan, and Manitoba on April 1, 2019, because those provinces did not create their own plans in time for the federal deadline. For Nunavut and Yukon, which asked to use the federal system, it began on July 1. Alberta, which recently ended its tax, will see a federal carbon tax starting January 2020. (The rest of the country already have carbon pricing in place.) Here, we explain how—and if!—carbon taxes work.
What is a carbon tax?
Carbon taxes put a direct price on emissions. Generally, this means that greenhouse gas emitters—usually fuel producers and distributors—pay a designated amount per each tonne of carbon dioxide emitted from burning carbon-based fuels. In order to motivate emitters to decrease emissions, the price usually goes up slowly over time so households and industries have time to adjust and adopt less carbon-heavy practices.
What’s the difference between a carbon tax and cap-and-trade?
Cap-and-trade is indirect carbon pricing. The government sets a limit (the cap) on carbon emissions by companies, who are then given emissions permits. If a company’s emissions fall below their permits, they are allowed to sell excess permits (the trade) to a company that has exceeded theirs. Experts say that both methods—carbon taxes and cap-and-trade—are effective if done well.
How effective is carbon pricing at fighting climate change?
Scientists and economists agree that when the government puts a price on carbon, it raises the incentive for industries to innovate and find ways to lower their emissions. In an interview with CBC, Nobel Prize-winning economist Paul Romer said, “If you just commit to a tax on the usage of fuels that directly or indirectly release greenhouse gases, and then you make that tax increase steadily in the future … people will see that there’s a big profit to be made from figuring out ways to supply energy where they can do it without incurring the tax.” And, it can change the behaviour of individual consumers, too. Sumeet Gulati, a professor in the department of Food and Resource Economics at the University of British Columbia, who has studied the effectiveness of carbon taxes, said that even a low carbon tax leads to people adopting everyday measures such as driving less and opting for more fuel-efficient cars.
The numbers seem to agree too—British Columbia saw net emissions fall by 4.7 per cent over eight years after putting in a carbon tax, and for an example outside of Canada, Sweden has seen emissions fall by 26 per cent since implementing a carbon tax in 1991 alongside an existing energy tax. By comparison, Saskatchewan—which does not have a carbon tax—saw heavy increases in greenhouse gas emissions from 1990-2015.
Of course, other factors also play a role in decreasing emissions, and it would be inaccurate to give all the props to a carbon tax. Ontario and New Brunswick, for example, saw major drops in greenhouse gas emissions when they closed coal-fired electricity generation plants and mills respectively.
Estimates have still put Canada short of its stated goal to cut emissions to 70 percent of what they were in 2005 by 2030. The United Nations Intergovernmental Panel on Climate Change, however, suggests Canada’s commitment is more than 100 million tonnes shy of what is needed—the equivalent of what 28 million passenger cars emit in a year.
Where does Canada’s federal government stand on a carbon tax?
In order to meet Canada’s commitment under the recent Paris Agreement emissions goals (in which countries agreed to work towards limiting a global temperature increase to 1.5 degrees Celsius), the federal government’s Pan-Canadian Framework on Clean Growth and Climate Change has established a carbon tax benchmark, which calls for carbon prices to begin at a minimum of $10 per tonne this year, and increase by $10 per year until it hits $50 per tonne in 2022. Under the plan, provinces that didn’t come up with their own carbon pricing plan by 2019 will receive a federally mandated carbon tax—or “backstop”—imposed on them.
Critics have pointed out that the proposed Canadian tax is too low to make a substantial difference, let alone save the environment from the disaster predicted by the UN’s Intergovernmental Panel On Climate Change—they say it needs to be higher to meet Canada’s targets. However, Sara Hastings-Simon, a senior fellow at the Pembina Institute, an energy think tank, says that we are in the middle of an “energy transition” and that we need to look at short term, midterm, and long term solutions. In order to make the tax politically palatable and assist carbon heavy industries with the change, it can help to start the tax low.
“Is it enough to meet our 1.5 commitment at the Paris Agreement? Probably not, but this comprehensive federal carbon tax is something no one else is doing,” Gulati says. “I don’t see any value of that argument saying there is no point if the tax is too low. You have to simply start.”
What does a carbon tax mean for Canadian consumers?
Consumers won’t have to pay a tax directly (corporations and businesses do), but they will face higher prices for goods and services from industries that emit higher greenhouse gases. For example, gas saw a price increase of 4.4 cents per litre in Saskatchewan, Manitoba, Ontario and New Brunswick in April 2019—a surcharge that is projected to go up to 11 cents a litre by April 2022 as the carbon tax gradually increases. The federal carbon tax backstop policy will help counter this cost with a general annual rebate to Canadian households based on the average expenses of a province and divided evenly across the board. The average rural household in Saskatchewan, who drive more than urban counterparts, for example, would receive a projected $598 rebate—regardless of how much they spend or emit (although it should be noted that gas and diesel for farming are eligible for exemption from carbon tax fuel charges). By comparison, the average household in Ontario would receive $300.
What provinces already have their own carbon tax?
British Columbia introduced the first North American broad-based carbon tax back in 2008. As with any new tax, the carbon tax there faced opposition. In 2009, 47 per cent of British Columbians said they opposed the tax, despite it being internationally lauded. Emissions in the province are now priced at $35 per tonne, and will increase each year by $5 until the cost reaches $50 per tonne in 2021. To offset the cost of taxes for individuals, the government offers a climate action tax credit with GST/HST returns. The B.C. government recently released its CleanBC plan, which includes industrial incentives and a Clean Industry Fund to help industries stay competitive as they try to innovate.
Alberta implemented a tax on all types of fuel in 2017 with plans to increase the price per tonne by $10 annually. The province has some of the lowest taxes in the country already, and the provincial government under Rachel Notley offered support for small businesses and farmers in light of the climate plan. However, premier Jason Kenney killed that plan on May 30. Recently, the federal government approved Alberta’s planned $30-a-tonne carbon price on emissions from big industry. The climate battle between Ottawa and Edmonton will continue as the federal government will apply its carbon tax on the purchase of fuels like gasoline, natural gas and propane in Alberta.
Quebec (where voters tend to support government action against climate change) has enforced a cap-and-trade program since 2013 and has seen a relatively steady decline in emissions, while Ontario’s cap-and-trade program was cancelled by premier Doug Ford after only seven months when his party ousted Kathleen Wynne’s Liberal government (who had only just signed the cap-and-trade deal back in September 2017).
So how do political leaders who oppose the carbon tax plan to fight climate change?
Conservative leader Andrew Scheer and premiers Scott Moe of Saskatchewan, Brian Pallister of Manitoba, Jason Kenney of Alberta and Doug Ford of Ontario are all against the federal carbon tax—although they say they do have plans to combat carbon emissions. Pallister told Maclean’s that his plan “focuses on cleaner water, conservation of nature, economic opportunity and effective steps to reduce emissions.” Canada’s Ecofiscal Commission points out that minimum requirements (for example, fuel efficiency for businesses) and regulations, such as B.C.’s renewable fuel standard, are often more politically palatable, but more expensive than direct carbon pricing.
Moe’s government has called the federal carbon tax unconstitutional, but on May 3, Saskatchewan’s Court of Appeal ruled in a split decision that the federally imposed carbon tax is constitutional. Saskatchewan had argued before the court that Ottawa was overstepping its jurisdiction, but federal lawyers said greenhouse gas emissions are a national concern. Moe’s appeal to the Supreme Court is set for January 2020. Ford and New Brunswick premier Blaine Higgs joined the challenge, as well as Alberta’s Jason Kenney, when he was opposition leader. However, after the federal election Higgs said in a press conference that he’d look at how to comply with the Trudeau government’s federal climate plan—acknowledging the country had spoken. And, as of April 2020, New Brunswick consumers will stop paying the federal carbon tax and instead pay an equivalent provincial version. Pallister said he’s sticking with his opposition to the tax, even after the Liberals won. In Ontario, the provincial government filed a court challenge against the constitutionality of the carbon tax—and lost.
Ford recently said he will pursue an appeal to the Supreme Court, previously stating his government was committed to spending $30 million to challenge the tax. Ford has also defended spending millions of taxpayer dollars on ads against the federal carbon tax and his government says they will spend $5,000 on stickers for gas pumps that indicate how much gas prices will increase from now until 2022 in the name of “transparency”—a move that is now subject to a court challenge from the Canadian Civil Liberties Association. Plus, the stickers just aren’t sticking—literally. The stickers were produced using the wrong adhesive and are falling off gas pumps, where they are required by law to be.
— Laura Stone (@l_stone) April 8, 2019
In June 2019, The National Post reported on think-tank Canadians for Clean Prosperity’s findings that Ontario’s “climate plan” will cost businesses and households 59 percent more than the federal carbon tax would in 2022.
What happens now?
In Justin Trudeau’s victory speech after winning re-election, he pledged to continue fighting climate change. The Liberal platform promised to continue enforcing a “price of pollution,” along with the rebate system to help offset costs of the carbon tax. They’ve also vowed to move Canada to net-zero emissions—reducing greenhouse gas emissions to as close to zero as possible—by 2050. And, as Chris Turner writes in the Globe and Mail, “because climate policies plow into unknown terrain and tend to gain support when they fail to bring about chaos and ruin, another few years up and running may prove decisive for the long-term survival of carbon pricing.”
But the pressure will be on to increase the carbon tax—the Ecofiscal Commission says quadrupling Canada’s carbon price by 2030 is the easiest and most cost-effective way for the country to meet its climate targets. In a new report, commission chair Chris Ragan said hiking the carbon price $20 per year between 2022 and 2030, until it hits $210 per tonne, would get Canada to its targets under the Paris Agreement on cutting emissions. That would be on top of the $50-a-tonne price on carbon emissions that will be in place by 2022.
Originally published May 24, updated December 6, 2019
With files from Radiyah Chowdhury and the Canadian Press