Canada should quadruple carbon tax to meet 2030 targets, commission says

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Carbon pricing has the smallest impact on Canada’s economy compared with emissions-reducing policies that rely heavily on regulations or subsidies, according to a report released on Wednesday by the Ecofiscal Commission.

However, the commission said that if Canada were to meet its 2030 targets to cut greenhouse gas emissions through carbon pricing, Canada must more than quadruple its carbon tax and rebate the revenues to consumers. Canada’s current carbon tax is scheduled to rise to $50 a tonne of CO2 by 2022 from $20 this year; the commission said the tax should rise to $210 by 2030.

During the election campaign, Prime Minister Justin Trudeau repeatedly promised his government would “meet and surpass” its 2030 goal to cut emissions by 30 per cent below 2005 levels. But Ottawa’s own numbers show a 79-megatonne gap between its policies and the stated goal. The commission’s report lays out possible options for bridging that divide.

In his first mandate, Mr. Trudeau made the carbon price a key part of the climate plan and bolstered it with a suite of measures including regulations on the carbon content in fuels, subsidies for electric vehicles and investments in public transit. During the election, the Liberals said they would add to the plan with tree planting, interest-free loans for building retrofits and tax cuts for companies developing zero-emissions products.

The report found that the policies that are the most visible to consumers, such as the federal carbon tax, are also the cheapest to implement and lead to the greatest economic gain. However, these policies are often the most politically contentious.

The report estimates that the higher carbon tax would add about 40 cents to the price of a litre of gas. But “the majority of people are going to get more back than they pay," Ecofiscal chair Chris Ragan said in an interview with The Globe and Mail.

The findings come as yet another international report warns the Earth is on track to dangerous levels of warming if governments around the world don’t implement policies to stop the rise in emissions. Canada and other signatories to the Paris Agreement agreed to limit warming to 1.5 degrees Celsius in 2015, but the UN’s Emissions Gap Report, released on Tuesday, shows the world on track to double that warming to 3.2 C.

The report studied three revenue-neutral policy options that Canada could use to meet its targets.

The first option puts carbon pricing as the main policy driver; the second has a focus on economywide regulations and some subsidies; and the third puts an emphasis on industry-specific regulations and subsidies. It found that under the higher carbon pricing, the economy would grow on average annually by 1.37 per cent between 2020 and 2030, compared with 1.16 per cent under the second option and 0.81 per cent under the third.

“There’s a substantial gap in terms of cost per Canadian," Mr. Ragan said.

Leading up to the federal election, the carbon tax appeared to be politically toxic, with several provinces challenging the federal tax in court and Premiers Jason Kenney and Doug Ford winning power based on anti-carbon tax agendas. Ultimately, though, approximately two-thirds of voters supported parties with carbon pricing in their platforms.

In response to the report, neither the NDP nor the Liberals committed to advocating for higher carbon taxes and the Conservatives said they would continue to campaign against any carbon tax.

The Green Party’s Elizabeth May called the report “irrelevant” because the government’s current 2030 targets mean Canada still isn’t doing its share to limit warming to 1.5 degrees.

With a report from Reuters