If the federal government doesn’t enact other measures to combat climate change, it will have to significantly increase its carbon tax in order to meet emissions reduction goals, according to the federal budget watchdog.
Ahead of Ottawa’s long-anticipated release of its plan to meet and exceed Canada’s 2030 emissions targets, the Parliamentary Budget Officer’s report set a baseline for the potential costs to consumers, industries and the economy of meeting the targets.
In its report released Thursday, the Parliamentary Budget Officer puts three scenarios on the table that show the tradeoffs between protecting trade-exposed industries and the higher costs that other sectors and consumers would then face.
The report found if Ottawa were to shift to a broad-based carbon tax with the same system for consumers and industries, the carbon tax would have to rise to $117 in 2030, up from $50 in 2022. If instead, the federal government continues with its two separate systems for heavy industry and consumers, then the price would hit either $131 or $289, the report found. The higher cost option would kick in if energy-intensive and trade-exposed industries are protected from any price increases post-2022, therefore shifting the burden to consumers and other sectors. Trade-exposed industries are those where a high carbon price might shift the emission-causing activities into another jurisdiction.
The report from Yves Giroux and his staff estimates that solely relying on carbon pricing to close the gap in Canada’s emissions targets, would eat into Canada’s real GDP in 2030 by between 0.47 and 0.62 per cent depending on which of the three pricing scenarios is used. The lowest economic hit comes from the mix of policies that would lead to a $131 carbon tax in 2030, the report said.
“Whether the price on carbon is very high or more modest doesn’t affect the economy that much overall because consumers get rebates that get recycled in the economy," Mr. Giroux said during a livestreamed press conference on Thursday.
The Parliamentary Budget Office report is based on a simplified model that would see all provinces and territories using the federal consumer and industrial carbon tax systems. It accounts for the emissions reductions from policies that were either implemented or promised by September 2019, and so does not include promises from the Liberal government’s election platform or Throne Speech.
Mr. Giroux’s office did not calculate the economic costs of not addressing climate change because it did not have the resources to do so, he said.
The government did not provide a response to the report from the Parliamentary Budget Office before publication.
The Liberals have not yet said what will happen to the carbon tax after 2022, but have said it won’t solely rely on carbon pricing to meet its emissions goals. The policies they have put on the table so far though — spending on energy retrofits and zero-emissions vehicles — have been promised without details to show the impact they will have on emissions.
Economists say that for a carbon tax to be effective it needs to continue to increase in stringency in order to incentivize businesses and individuals to reduce their emissions. The carbon tax currently sits at $30 and increases by $10 each year.
In the September Throne Speech, the government said it would immediately release its plan to exceed the 2030 emissions targets, but no date has since been released.
According to data from the federal government, Canada still faces a sizable gap in meeting its pledge to cut emissions by 30 per cent below 2005 levels by 2030. Still, the minority Liberals have pledged to not only meet those targets but exceed them.
Mr. Giroux’s office noted that the suite of policies and measures announced up to September 2019 “are not sufficient” to meet the goal of limiting emissions to 511 megatonnes in 2030, and a gap of 77 megatonnes remains.
Since 2015, the government has said it will spend about $60-billion to reduce emissions, adapt to climate change, and invest in clean technology.
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