Canada’s carbon tax: Competitiveness first?

Canada - Oct 11 2018

Weekly food for thought

As the Trump administration continues to repeal all binding environmental policies, the Canadian federal government is pushing through a law compelling every Canadian province to adopt a carbon pricing system. The new regulation provides flexibility. 

Provinces can choose to opt for a cap and trade system or an explicit price-based system. Nevertheless, the carbon price has to be set at a minimum of 10 CAD per ton in 2018 and should reach 50 CAD in 2022. At the same time, the cap and trade system should have declining emissions caps that correspond to the reductions of the carbon pricing system. The government has estimated that the pricing system will eliminate 80 to 90 million of GHG emissions in Canada by 2022 – equivalent to closing 20 to 23 coal plants for a year. This would be a major step towards meeting Canada’s climate targets under the Paris Agreement. 

Projected Carbon Prices according to Canadian plan (converted to USD)

However, the deal has met its fair share of resistance from Canadian conservatives and business representatives, all the more since the U.S. is breaking many environmental obligations for U.S. companies, and has put in place, for example, high tariffs on steel imports. Ottawa has given credit to these criticisms. In late July, it decided to soften its plan by setting the benchmark from which emissions will be taxed starting at 80% of the industry’s average emissions, instead of 70%. For producers of cement, iron and steel, lime and nitrogen fertilizer, the cutoff point is even higher, at 90%. This concession is a clear signal that Canada wants to protect its industries against American competitors that are protected by high tariffs and allowed free emissions. Even in Canada, the environment tends to pay the price of America first.  

 

Guillaume Emin, Project Manager - Sources: Government of Canada, Wall Street Journal, Beyond Ratings

 

 

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