Canada Makes Strides Towards National Carbon Price by 2018

15 December 2016

Eight of Canada’s ten provinces have signed onto meeting a minimum national carbon price of C$10 (US$7.60) per metric tonne in 2018, helping pave the way for developing new cap-and-trade schemes and carbon taxes across the North American country.

Canadian Prime Minister Justin Trudeau had previously outlined his plan in October to have the entire nation covered by some form of carbon price by 2018, which would increase progressively every year. By 2022, the price of carbon per metric tonne would be C$50 (US$38).

While the minimum price would apply at the national level, provinces would have flexibility in setting up the carbon pricing scheme that they deem most appropriate for them, such as a carbon tax, which involves paying a fee corresponding to the level of emissions produced, or a “cap-and-trade” system, known otherwise as emissions trading.

The move is the latest in a series of efforts seen across different parts of the world towards adopting carbon pricing schemes.

Pan-Canadian framework

The news of the eight provinces being on board was confirmed following a meeting of Canada’s First Ministers with Trudeau on 9 December, with officials citing carbon pricing as an essential step towards the North American economy meeting its greenhouse gas reduction (GHG) goals under the UN’s Paris Agreement on climate change.

Under the Paris Agreement, Canada has committed to cutting greenhouse gas emissions by 30 percent below 2005 levels by 2030 under its “nationally determined contribution.” All parties to the UN accord have committed to submitting these individual plans, which are expected to be augmented over time.

Canada is responsible for nearly two percent of global greenhouse gas emissions, with transportation and electricity among its top sources of emissions. While Canada famously pulled out of the Kyoto Protocol under the leadership of former Prime Minister Stephen Harper, the new government under Trudeau has worked to perform an about-face on climate and environmental policy.

Canada has already signed and ratified the Paris Agreement, which has been in force since early November.

Along with citing their international commitments, First Ministers also characterised their new “Pan-Canadian Framework on Clean Growth and Climate Change” as a way to respond to the national interest, given the myriad challenges posed by a warming planet.

“We are already facing the social and economic costs of climate change which poses significant risk to our environment, as well as to our health, security, and future prosperity,” said Canada’s First Ministers in a communiqué released after their meeting.

They also termed carbon pricing as “an efficient way to reduce GHG emissions, drive innovation, and encourage people and businesses to pollute less.”

While some provinces, such as British Columbia and Québec, already have some form of carbon price in place through a tax or a “cap-and-trade” scheme, other provinces will be adopting this practice for the first time.

Those provinces with cap-and-trade schemes would also need to set 2030 emissions reduction goals that match or surpass Canada’s national target, among other requirements. They would also need to ensure that their annual caps for the initial years – through 2022 – match with estimated emissions cuts that would be seen under the national carbon price.

Those jurisdictions that do not meet the national price will see the Canadian federal government set up a scheme for them.

The provinces which have signed onto the new framework are Alberta, British Columbia, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, and Québec. The two provinces which have not taken on commitments under this new framework are Manitoba and Saskatchewan.

An annex in the “Pan-Canadian Framework on Clean Growth and Climate Change” outlines the specific steps each province will take in the area of carbon pricing, along with other measures relating to improving energy efficiency and supporting the use, deployment, and investment in renewable energy sources. These will later be reviewed in 2022 to evaluate next steps.

Canada’s three territories – the Northwest Territories, Nunavut, and Yukon – will all work with the Canadian government to examine the prospects for carbon pricing in their respective jurisdictions, with the Pan-Canadian framework referring to the “particular circumstances” facing each territory

Canadian environmental groups such as the Pembina Institute welcomed the move, with the group’s executive director Ed Whittingham calling it “a critical turning point in Canada’s response to climate change.”

“The climate measures tabled today make an important contribution towards Canada’s 2030 target. However, first ministers will need to continue to work together to ensure long-term climate success,” said Whittingham in a press statement.

International developments

The news from Canada comes as carbon pricing developments and debates continue around the globe, ranging from efforts to update the EU’s existing system to the expected launch of a national carbon market in China at some point next year. Mexico is also planning to set up its own national system in 2018.

Some experts who have mapped the various carbon pricing efforts underway in different parts of the world have noted the potential for establishing future linkages between them, referred to in climate circles as “carbon market clubs.” Examples of such links are already in place, with sub-national schemes in Québec and California set to join with Ontario’s cap-and-trade programme next year.

 

 

Media reports have also indicated a potential interest in developing linkages between the EU scheme and the future Chinese one. Negotiations have already been concluded between the EU and Switzerland to link their respective carbon markets. (See Bridges Weekly, 28 January 2016)

Across the Atlantic, the European Parliament’s environment committee voted on Thursday 15 December in favour of a set of reforms to the 28-nation bloc’s flagship Emissions Trading System (EU ETS) for the post-2020 period.

The EU’s scheme is the oldest in the world, as well as the largest currently in place. However, it has struggled with a glut of excess permits, together with low carbon permit prices, prompting a series of efforts to revamp the system in order to raise permit prices and spur investment in less carbon-intensive technologies. (See Bridges Weekly, 23 June 2016)

“We are pleased that a number of improvements are under consideration that could bolster the ETS's role as the centerpiece of European climate policy, and we look forward to seeing a compromise package that helps the EU achieve its Paris goals cost effectively,” said Dirk Forrister, chief executive officer of the International Emissions Trading Association (IETA), a non-profit business group which backs setting up an international “framework” for emissions trading.

Meanwhile, though Australian legislators repealed their carbon tax over two years ago, debates continue at the national and sub-national level over whether to pursue some sort of carbon pricing system in the future. (See Bridges Weekly, 17 July 2014)

Australian Prime Minister Malcolm Turnbull confirmed last week that Canberra will not be pursuing a new carbon pricing policy at the national level, despite earlier speculation that there may have been interest in exploring a possible “emissions intensity scheme” in the context of a government-led climate review.

“We are not going to take any steps that will increase the already too high cost of energy for Australian families and businesses. We will not be imposing a carbon tax and we will not be imposing an emissions trading scheme, however it is called,” he said in Sydney last week.

However, some state leaders such as South Australian Premier Jay Weatherill have suggested that the country’s states and territories could aim to establish carbon “emissions intensity schemes” themselves, even if the federal government is not backing such a move at the national level.

"It would clean up our energy system, it would make it more secure because it would encourage more baseload gas generation which is half as carbon polluting as coal fired generation. It would put downward pressure on prices because you would introduce more competition in the South Australian energy market,” said Weatherill, whose state faced a major blackout just months ago.

ICTSD reporting; “Trudeau Unveils Carbon Price as Canada Acts on Paris Pledge,” BLOOMBERG, 3 October 2016; “Canada’s Oil Provinces Object to Trudeau’s Carbon-Pricing Plan,” WALL STREET JOURNAL, “Trudeau unveils Canada’s carbon price plan in 2018,” PHYS.ORG, 3 October 2016; “Canada to Set Carbon Price, Marking Split with Trump,” REUTERS, 10 December 2016; “Turnbull rules out introducing carbon tax,” SKYNEWS, 7 December 2016; “Climate policy review: SA Premier Jay Weatherill calls for state-based emissions trading scheme,” ABC NEWS, 8 December 2016; “Mexico, Ontario, Quebec pledge carbon market cooperation,” CLIMATE HOME, 1 September 2016.

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