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Canada’s Carbon Policies Try to Provide Something for Everyone

Carbon reduction policies are necessary—the sooner the better—but planning and coordination will be critical so that the effects are as minimally disruptive as possible.

In the last two years, we’ve seen big commitments in the fight against climate change, including global initiatives such as the Paris Accords and national efforts like the U.S. Clean Power Plan. However, in the United States, momentum at a national level is incredibly difficult to sustain, in large part because of partisan politics and regional differences. The Clean Power Plan is languishing, after a February ruling by the Supreme Court, and the Waxman-Markey cap-and-trade bill met its end in the Senate in 2009, derailing what had been a steady bipartisan march toward a federal climate policy. California, meanwhile, remains the standard-bearer for sub-federal carbon reduction measures.

While federal efforts to arrest climate change have slowed in the United States, a majority of Canadians will soon live under some type of carbon pricing regime. These policies are designed at the provincial level and not coordinated by the federal government. This has led to uneven policies that have far ranging economic consequences for producers and consumers throughout Canada. The progress in Canada is better than the stagnation in the United States, but it’s still inefficient, and the lack of coordination at a federal level is limiting the country’s ability to slow carbon pollution.

Because of the provinces’ constitutional authority over most types of carbon-reduction policies, they must take the lead on these issues. Alberta and British Columbia have or are implementing a carbon tax. Quebec has linked its carbon market to California’s and implemented a variety of carbon reduction measures. Ontario recently joined the pack with a June 2016 Climate Action Plan that introduced a host of new instruments and incentives to drive down carbon emissions. The Ontario plan follows the now-familiar policy formula of either a carbon tax or cap-and-trade system, plus carbon-reduction incentives that are intended to blunt the realization that the inevitable result of either tax or cap-and-trade is higher consumer prices. Increased fuel prices are the obvious effect, but inevitably, it will cost more to emit carbon in the production of any good or service, and this expense is passed on to consumers. Yes, either the tax or the cap creates an incentive to invest in greener technologies that could eventually lower prices and taxes, but these results are mostly speculation with little testing in the real world.

At what point will the carbon price become too high to grow and ship a bushel of wheat from Saskatchewan to New York City? 

In Ontario, we see a number of the other policy “innovations” designed to generate public support and show the public how cap-and-trade funds are being reinvested. These new measures include electric vehicle incentives, cash for clunkers, and funds to reduce the carbon footprint of cities, business, and homes. Of note, Ontario is offering some of the most generous electric vehicle subsidies in the world. Soon, buyers of electric vehicles in Ontario will receive between C$3,000 and C$14,000 in credits, and new funds will be allocated to private and public charging stations. The province is even changing the building code to ensure that all new home construction includes a 50-amp 240-volt garage plug for car charging.

By offering a wide array of positive incentives for Ontarians, the government hopes it can more aggressively ratchet down its carbon emissions and avoid the morning-after effect that British Columbia is now experiencing. BC enacted the continent’s first carbon tax in 2008. Since then, the province has raised the tax from C$10 to C$30 per ton of CO2. However, additional increases have been put on hold until at least 2018 to ensure that, as BC’s environment minister explains, businesses remain competitive and consumers can afford the increase.

Even supporters of carbon pricing criticize incentive programs as reheated, inefficient, and unfair. They are also an attempt to divert public attention away from the risks of implementing a number of relatively untested policies, especially in a Canadian economy hit hard by low commodity prices and a weak dollar, and a manufacturing sector that never recovered from the 2008–2009 recession.

There is no doubt that the cost of climate change to future generations is worth the most serious investment that we can offer today, but the uncertainties of many of the policy “innovations” threaten to generate unnecessarily negative effects in the name of doing good. Some of the most troubling effects include a lack of coordination between jurisdictions causing business and investment to move from more expensive to cheaper areas. In that same vein, there has been little research on the indirect effects of carbon pricing on emissions-intensive, trade-exposed industries. At what point will the carbon price become too high to grow and ship a bushel of wheat from Saskatchewan to New York City? And, at the core of these sub-federal initiatives, there are questions about whether and how carbon taxes will be reinvested or redistributed. Even more uncertain are the mechanisms for pricing, trading, and regulating carbon credits for cap-and-trade systems not to mention verification and compliance costs.

Carbon reduction policies are necessary—the sooner the better—but planning and coordination will be critical so that the effects are as minimally disruptive as possible.With the tidal wave of new of sub-federal policies, the need for coordination is acute. Esoteric mechanisms designed to buy public support or mask a lack of thorough planning are not innovation—they just make it harder to focus on policies and practices that actually work.

The opinions expressed here are solely those of the authors.

This article originally appeared in Slate

Canada Institute

The mission of the Wilson Center's Canada Institute is to raise the level of knowledge of Canada in the United States, particularly within the Washington, DC policy community.  Research projects, initiatives, podcasts, and publications cover contemporary Canada, US-Canadian relations, North American political economy, and Canada's global role as it intersects with US national interests.  Read more