Cutting our greenhouse-gas emissions now can soften the blow. That was Prime Minister Justin Trudeau rationale for a national carbon-pricing plan, introduced in 2019, to encourage Canadians and big business to use less fossil fuels. Canadians are paying more for the gas they burn and the products they buy, but the cost depends on where you live – and whether your province has its own carbon tax or has had a federal tax imposed, such as in Ontario, Manitoba, Saskatchewan and New Brunswick.
In fall 2019, the federal Liberals’ re-election and Conservatives’ defeat may have saved carbon pricing from the chopping block, but the legal battle between federal and provincial governments is far from over. Alberta’s Court of Appeal ruled in February that the carbon-pricing plan is unconstitutional, leaving its future in the hands of the Supreme Court of Canada. It’s more important than ever for Canadians to understand the facts about what is being taxed and why. Here’s a primer to get you started.
What is a carbon price?
What’s being taxed: A carbon price is a fee imposed on each tonne of emissions from fossil fuels, meant to help lower the amount of greenhouse-gas emissions. Under the federal tax, oil products such as gasoline and diesel, natural gas and coal-fired electricity are affected.
What big business pays: Large industrial emitters are covered by a different system and will be taxed on a portion of their emissions, based on how efficient they are relative to industry peers. This is meant to protect industrial competitiveness while still providing an incentive for companies to reduce emissions.
Where the money goes: There are many ways the revenue can be used, such as offering rebates to customers, spending it on emission-reducing measures, lowering other taxes or including it as general revenue.
What impact it might have: By one federal estimate, the combined federal and provincial carbon-pricing plans would reduce greenhouse-gas emissions by up to 60 million tonnes in 2020, equivalent to 8.3 per cent of the country’s emissions in 2015. But even with those reductions, plus the phaseout of coal-generated power and other energy-efficiency measures, Canada would still fall short of its total promised emission cuts for 2030 by about 79 million tonnes, Environment and Climate Change Canada said last December. Getting all the way to compliance with the 2015 Paris climate-change accord will require faster adoption of electric vehicles and public-transit improvements, the ministry said.
Who pays what, and where
Where and when the tax is in effect: The federal levy, which came into effect April 1, 2019 applies to Ontario, Manitoba, Saskatchewan and New Brunswick, provinces that did not adopt their own carbon taxes, cap-and-trade systems or other plans for carbon pricing. (New Brunswick introduced a provincially run carbon tax, but the Trudeau government did not believe it met federal climate-change benchmarks.) In 2020, the tax was also applied to consumer spending in Alberta, which used to have its own consumer carbon tax that new Premier Jason Kenney abolished, and later replaced with an industry-specific carbon tax.
Canadians elsewhere are covered by provincial plans, either a direct tax or cap-and-trade system, and those governments decide what to do with the revenue.
What it costs: The federal tax prices carbon at $20 a tonne, or 4.4 cents per litre of gasoline, and rise to $50 by 2022. But according to federal estimates for 2020, the average family’s rebate will cover the average additional costs related to the carbon tax. The baseline amount for family of four, for instance, will be about $448 in Ontario, $486 in Manitoba, $809 in Saskatchewan and $888 in Alberta.
Why is the amount different in each province?
The amounts vary from province to province because each jurisdiction relies on different amounts of fossil fuels, meaning there will be more or less revenue per person generated from the tax. The payments in each province − which will increase as the price per tonne rises − will be based on the number of people in a household and paid to one tax-filer.
What is used elsewhere in Canada?
The provinces not covered by the federal tax have their own carbon-pricing plans. For example, British Columbia’s carbon tax is $30 per tonne, which translates to about seven cents for a litre of gas. Some provinces also use cap and trade, including Quebec, Nova Scotia and, until 2018, Ontario.
What is cap and trade?
How it works: It’s a system in which the government caps the total amount of carbon emissions allowed, then issues permits to companies specifying how much carbon they can burn. Allowances are sold at quarterly auctions and the results are published, so the public knows what regulated companies pay. If a company wants to burn more than its share of carbon, it must buy extra permits from other companies that have burned less. Over time, the government gradually lowers the cap, cutting the number of permits it issues and driving up their price.
How it cuts emissions: The idea is that companies will either burn less in order to make money by selling their extra permits or cut emissions to avoid having to buy more.
How Quebec and California do it: Quebec allows companies to buy credits from the state of California because it is less expensive to reduce emissions there. As a result, the cost is lower than it would be if companies were limited to purchasing credits within the Quebec market. That arrangement could be in jeopardy because the Trump administration is suing California, arguing that an emissions-trading scheme with Canadian jurisdictions infringes on federal authority over foreign policy. But Quebec’s government has said that it’ll continue with cap and trade even if California leaves the market.
How is cap and trade different from a carbon tax?
Under a carbon tax, the government simply sets a price on carbon and everyone who buys a product that creates emissions must pay it. In theory, people will cut their carbon use over time to avoid paying the tax. Cap and trade, on the other hand, gives government more mechanisms to target the cost to industry, not just individuals. The Trudeau government’s solution for large industrial emitters resembles cap and trade, in that companies can purchase credits from other firms.
There are some major pros and cons to each approach:
What are the pros and cons of a carbon tax?
- Pro: It’s relatively easy to administer and straightforward to understand. Everyone pays the same price to burn carbon.
- Con: It does not set an exact cap on emissions. The government just sets the price and hopes that consumer behaviour will do the rest.
What are the pros and cons of the ap and trade system?
- Pro: Government can mandate the exact greenhouse-gas reductions it wants to see, and tailor the auction of carbon permits to reach those reduction goals.
- Con No. 1: Cap and trade is a lot more complicated than a carbon tax and can be gamed by industry. For example, if companies overreport the amount of carbon they are burning to begin with, government could set the caps too high and not actually achieve significant reductions.
- Con No. 2: The allocation of permits allows government to pick winners and losers. If one company’s industry has a really good lobbyist, it could convince the government to allocate more free permits to it, and fewer to other sectors – with potentially unfair results.
Why is the carbon tax important?
Scientists overwhelmingly agree that climate change is a real and deadly threat to the world. The risk to Canada is particularly acute: A report from April, 2019 from federal scientists warned that Canada is warming twice as fast at the rest of the planet. Countries already struggling with extreme weather and rising seas can expect to see deadly and costly disasters, climate refugees and social unrest in a few decades, according to a watershed report from the United Nations’s Intergovernmental Panel on Climate Change. But the researchers’ report also says cutting fossil-fuel use dramatically and soon could soften the blow, which is why countries around the world are scrambling to adopt policies like carbon taxation and cap and trade.
Ottawa’s goal is to reduce emissions by 30 per cent below 2005 levels by 2030. Prime Minister Justin Trudeau argued the price on carbon emissions is a critical part of Canada’s commitment to the international effort to combat climate change and its dire impacts.
Projected annual temperature
change for Canada
For late century, 2081-2100
Projections are based on the Coupled Model Intercom-
parison Project (CMIP) multi-model ensemble. Changes
are relative to the 1986–2005 period.
JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE:
Canada in a Changing Climate: Advancing
our Knowledge for Action
Projected annual temperature
change for Canada
For late century, 2081-2100
Projections are based on the Coupled Model Intercomparison
Project (CMIP) multi-model ensemble. Changes are relative to the
JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: Canada
in a Changing Climate: Advancing our Knowledge
Projected annual temperature change for Canada
For late century, 2081-2100
Projections are based on the Coupled Model Intercomparison Project (CMIP) multi-model ensemble.
Changes are relative to the 1986–2005 period.
JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: Canada in a Changing
Climate: Advancing our Knowledge for Action
Where the federal Conservatives stand on a carbon tax?
The Conservatives oppose a direct carbon tax on the products consumers pay for, but it took Leader Andrew Scheer more than a year before he announced an alternative plan – one that still involved a form of carbon pricing. Mr. Scheer’s plan was to set a 40-kiloton-a-year limit on how much industrial emitters could emit, and required those who emitted more to invest in emissions-reduction technology. He also wanted to use tax incentives to encourage energy-efficient upgrades to homes and small businesses. But the plan stopped short of a direct commitment to the Paris target of 30-per-cent emissions reductions from 2005 levels by 2030, and environmental experts were skeptical that Mr. Scheer’s plan would even reach as close as Mr. Trudeau’s toward that goal, much less meet it.
The Conservative and Liberal plans were a wedge issue in the 2019 federal election, in which the NDP and Greens pressed for even faster timetables to phase out Canada’s greenhouse-gas emissions. The result was a minority Parliament still led by the Liberals, and a resurgence for the Bloc Québécois, which also supports carbon pricing. So for the time being, the federal carbon framework is here to stay. The Conservatives’ alternative is up in the air during an ongoing leadership race to replace Mr. Scheer, but both of the main contenders, Peter Mackay and Erin O’Toole, say they’d eliminate the carbon tax.
Premier Jason Kenney’s United Conservative Party repealed the consumer carbon tax as soon as it took power in 2019, then waited until after the federal election to introduce its alternative: A $30-a-tonne carbon tax on industrial emitters, but not consumers, to be implemented starting in 2020. Ottawa decided that the $30 price tag (higher than the $20 price the UCP campaigned on) met its requirements, so it spared Albertan industry from the federal tax, but left it in place for consumers. Then, Alberta’s Court of Appeal gave Mr. Kenney a major victory: It ruled 4-1 that the federal tax was unconstitutional, with the Chief Justice calling it a “constitutional Trojan horse” to intrude on provincial jurisdiction. The decision will be appealed to the Supreme Court of Canada.
Ontario Premier Doug Ford was against a carbon tax before he took office in 2018. His government scrapped the previous provincial Liberal government’s cap-and-trade program, saying the province would adopt policies aimed at reducing emissions but not include any kind of tax or levy. For months, Mr. Ford also rallied against the federal government’s plan alongside Saskatchewan Premier Scott Moe and Mr. Scheer. Ontario also took legal action against the tax, but was denied by the province’s Court of Appeal, which ruled 4-1 that the federal tax was constitutional.
Saskatchewan also tried to sue Ottawa over the carbon tax, but on May 3, the province’s highest court ruled 3-2 that the federal carbon tax is constitutional. Premier Scott Moe’s government introduced its own climate-change law in 2018, laying the groundwork for standards to reduce industrial emissions. Large emitters would be required to register with the province and could receive credits for reaching targets. But critics said the plan does not commit the province to mitigating greenhouse-gas emissions.
Premier Brian Pallister has alternated between support and criticism of carbon pricing. In 2018, he killed the province’s carbon tax – a proposed flat carbon price of $25 per tonne – and instead said the government would focus on other efforts to curb emissions. That led to the imposition of the federal tax in Manitoba, and some heated rhetoric against Mr. Trudeau during the 2019 federal election. In January of 2020, Mr. Pallister announced he had been seeking a dialogue with Mr. Trudeau, “and that dialogue will include a carbon price of some kind.”
Before the fall of 2019, Progressive Conservative Premier Blaine Higgs opposed the federal tax and argued that it would put too high a burden on New Brunswick’s rural population, which has few alternatives to driving cars to get around. But the federal election – in which most New Brunswick ridings re-elected Liberals, and one riding elected Atlantic Canada’s first Green MP – changed Mr. Higgs’s mind, and he announced he would craft legislation to comply with the federal framework. “People voted for it, so we in New Brunswick have to find a way to make it work," Mr. Higgs said the day after election day.
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