On carbon pricing, Canadians have nothing to fear but fear itself

It’s been two weeks since Prime Minister Justin Trudeau stood in the House of Commons and said that we’re going to have a price on carbon across Canada.

And I have to admit: it’s still sinking in. After a decade of polarized debate, we finally have a federal government willing to adopt what is arguably the most effective climate policy around.

The federal plan is a big step forward: the government chose a smart, straightforward approach that builds on the carbon pricing systems that several provinces built over the past decade while Ottawa sat on the sidelines.

Around the world, carbon pricing is the new normal, with seven of the world’s 10 biggest economies having at least some form of carbon pricing in effect today.

But the last two weeks have also shown that, unsurprisingly, the debate isn’t over quite yet. A number of myths and misperceptions—some classics, but some brand new—have emerged in response to Ottawa’s proposal.

So here’s our fact check in response to three myths and a misperception about Ottawa’s carbon pricing plan:

Myth 1: Carbon pricing will “disproportionately hurt” resource economies like Saskatchewan’s.

Fortunately for Saskatchewan, the federal plan leaves the design of carbon pricing systems up to individual provinces and territories. There are plenty of smart policy design options available to Saskatchewan, or to any other jurisdiction, that preserve the incentive to cut pollution while protecting vulnerable sectors (or, importantly, vulnerable citizens, such as low-income Canadians who can’t afford additional costs).

Saskatchewan needs to look no further than its neighbour to the west to see how this can be done. Alberta’s climate leadership panel, led by economist Andrew Leach, crafted an effective carbon pricing proposal that took full account of the potential impacts on the province’s resource sectors and proposed measures to manage those impacts.

Moreover, despite some federal-provincial drama, Ottawa’s plan is far from radical. Around the world, carbon pricing is the new normal, with seven of the world’s 10 biggest economies having at least some form of carbon pricing in effect today.

One very prominent global example helps put Canada’s effort in context: in 2017, China will move from regional carbon pricing pilot programs to a national system. And a year later, thanks to the prime minister’s announcement, Canada will catch up.

If the world’s biggest carbon polluter (and also, not coincidentally, the world’s biggest clean energy investor) can adopt a national carbon price, Canada’s provinces should have nothing to fear.

Myth 2: Trudeau used a “sledgehammer” on provinces.

That’s not the word I’d use to describe Trudeau’s announcement. But whatever you want to call it, I’m glad the prime minister opened the toolbox to make this happen.

We’ve spent too long in Canada letting the slowest movers set the pace on climate action. If this country is going to seize the opportunity offered by the global clean energy market, we need to take our cues from the leaders, not the laggards.

Ottawa’s plan will get all provinces and territories moving on carbon pricing by 2018. And after a couple of years of scheduled increases, it will also push today’s leaders to do more. And despite some sabre-rattling in response to Ottawa’s announcement, the federal government’s approach appears to fall well within their legal authority.

The new federal plan will cut Canada’s emissions by 18 million tonnes—equivalent to taking nearly four million cars off the road for a year—by 2030.

It’s not just me who welcomes some federal leadership on carbon pricing. Recent polling by Nanos Research found that:

  • A majority of Canadians (59%) support or somewhat support a price on carbon emissions.
  • 62% support or somewhat support a minimum carbon price that applies across Canada.
  • 66% support or somewhat support the federal government taking action on its own to meet national climate change targets, if the provinces and territories aren’t doing enough, and
  • Two-thirds of Canadians (66%) believe it is more important to have a plan to meet Canada’s climate change targets than to have all provincial and territorial premiers agree with that plan.

So it’s clear that Canadians want to see action, not political battles—and they’re comfortable with the federal government being the one to step up.

Myth 3: The price is too low to make a difference.

Well, that’s not what the early analysis shows. Modelling from EnviroEconomics suggests that the new federal plan will cut Canada’s emissions by 18 million tonnes—equivalent to taking nearly four million cars off the road for a year—by 2030, even if it stops ramping up after 2022.
And if it grows each year by $10 a tonne—maintaining the rate of growth Ottawa has set from 2018 to 2022—the price could cut Canada’s emissions by as much as 47 million tonnes by 2030 (equivalent to taking nearly 10 million cars off the road that year).

Economic theory suggests that even a low carbon price, like $10 a tonne, will influence decisions for some consumers. There is also real-world evidence that pairing a low starting price with a clear, non-negotiable ramp of price increases is a very effective combination.

Consider British Columbia. We interviewed the architects of B.C.’s carbon tax, which also started at $10 a tonne and laid out a five-year schedule of price increases. Our interviewees told us that:

  • Starting with a low price minimized disruption. It also proved the naysayers wrong: opponents predicted economic chaos, but after a year of pricing carbon, there was none to be seen.
  • Businesses need to make long-term capital decisions, so they consider possible carbon prices well into the future. From the start, B.C. businesses looked beyond the low starting price, focusing instead on the government’s $30 a tonne endpoint.

The result? Laying out a schedule of predictable price increases allowed a small initial price to punch well above its weight.

The federal price schedule rises to $50 a tonne by 2022, and there is no question that businesses will be feeding that higher price into their spreadsheets as of today.

Misperception: All we need is a carbon price

Even at $50 a tonne, Ottawa’s carbon price isn’t enough to close the gap to our 2030 target.

In a recent assessment, economist Mark Jaccard and his co-authors found that it would take a price of about $200 a tonne to hit our national target through price alone.

However, the Jaccard paper also includes a second scenario, one where Canada hits its target by pairing a far lower price—$40 a tonne—with smart regulations to cut emissions from buildings, transportation and industrial process.

In other words, Prime Minister Trudeau’s announcement—important as it was—is just one piece of the puzzle. Along with carbon pricing, a serious national climate plan needs to incorporate a full suite of policies that spur the shift from fossil fuels to clean power.

It’s very promising that Ottawa played a strong opening hand—but the game is far from over. Let’s hope they’ve got a few more cards up their sleeve to put on the First Ministers’ table later this fall.

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