Ottawa won’t raise the carbon price beyond $50, environment minister says

Thestar.com
June 14, 2019
Alex Ballingall

Federal Environment Minister Catherine McKenna revealed Thursday that the federal government will not raise the national carbon price beyond 2022, a decision that experts say means Canada will need to rely on other measures to meet its emissions target under the Paris Agreement.

McKenna made the statement when speaking to reporters about a new report from the Parliamentary Budget Officer. The report estimated that, if Canada is to rely on carbon pricing to hit its target under the international accord to fight climate change, the country will need a $102-per-tonne levy by 2030 that applies more broadly across the economy.

But McKenna ruled that out when addressing the report outside the House of Commons on Thursday.

“The price will not go up,” she said, pointing to how the current $20-per-tonne levy is scheduled to rise to $50 under the framework to fight climate change that was negotiated with the provinces. She said the government’s plan is to freeze the price at that point, while pursuing a host of other measures like reducing plastic pollution, phasing out coal-fired electricity and handing out rebates to encourage the purchase of zero-emission vehicles.

“We are doing exactly what we said we would do,” McKenna said. “The plan is not to increase the price post-2022.”

Christopher Ragan, an economics professor at McGill University and chair of the Ecofiscal Commission, said that, without a stronger carbon price, the government will need to pursue policies that many experts argue are more costly to the economy than the price signal of a carbon levy to deter emissions.

“The reason why economists advocate for a carbon price is that it’s the lowest cost way to (reduce emissions),” said Ragan, whose own modelling estimates the price would need to go up to $125 to $130 per tonne in 2030 to ensure Canada meets its Paris target.

“It’s always been something that I feared, that this government would design a carbon price ... but they wouldn’t actually rely on it to do most of the heavy lifting,” he said.

The federal carbon price has been at the centre of an ongoing political battle over how best to fight climate change and grow the economy. On Thursday, federal Conservatives continued their onslaught from the opposition benches, arguing the Liberal policy is nothing more than a tax grab that raises costs for consumers while failing to ensure Canada meets its Paris target.

A cohort of premiers has also lined up against the carbon price, which was imposed in their jurisdictions after they refused to design their own systems that met Ottawa’s minimum standard. Ontario’s Doug Ford calls it a “job-killing carbon tax” and has launched a $30-million ad campaign to denounce the policy. In Alberta, Premier Jason Kenney scrapped the carbon price created by the previous NDP government, prompting Ottawa to impose the federal pricing system in the province.

McKenna said Thursday that the federal system will be imposed there Jan. 1, 2020, and 90 per cent of the revenues from the levy -- like in the other four provinces where the federal price was imposed -- will be returned through tax rebates to individuals and households.

In a statement Thursday, Conservative Leader Andrew Scheer said he would scrap the federal carbon price if his party wins government in the election this fall. Scheer plans to release his own environment plan June 19, and says it will not include a price on carbon emissions.

“Unlike the Liberal plan, which is not an environmental plan but a plan to raise taxes on Canadians, our Conservative plan will take meaningful action to protect our environment while protecting Canadian taxpayers,” Scheer said.

Concordia University economics professor Moshe Lander said if Canada’s carbon price is too low, it will be ineffective, because it won’t send a strong enough signal to businesses and consumers to change their behaviour in ways that reduces emissions. That means Canada will either miss its emissions target, or have to implement other measures to meet it, he said.

“We have a prime minister who is almost openly fighting with five premiers,” Lander said, suggesting it is politically dangerous to commit to raising the price ahead of the federal election.

“That’s making this too poisonous to deal with right now,” he said.

Under the previous Conservative government, Canada committed to slashing its national greenhouse gas emissions to 30 per cent below the 2005 level by 2030 -- a target the Liberals reaffirmed as the country’s contribution to the global fight against climate change under the Paris Agreement after they took power in 2015.

The latest projections from Environment Canada say that, based on current policies, Canada will miss that target by at least 79 megatonnes of emissions -- achieving 592 megatonnes in 2030 instead of 513. That projection takes into account the current carbon price plan that was imposed in four provinces this year, and is expected to cut emissions by 50 to 60 megatonnes in 2022.

McKenna insists Canada remains committed to hitting its Paris target even without a higher carbon price; her department has predicted that future gains in technology, as well as coming effects of better public transit and other measures, will be enough to overcome the projected shortfall.

Relying solely on a carbon price to close the gap, the budget office estimated the national minimum would need to jump from $50 to $56 in 2023, and then climb every year until it hits $102 per tonne of emissions in 2030.

This would translate to an extra 23 cents per litre of gasoline in that year, the budget officer said.

The additional levy would also need to apply to emissions from all industries except agriculture in all provinces and territories, the budget officer said. As it stands, the federal carbon price sets a minimum fuel levy and has a separate system for heavy emitters based on the emissions-efficiency of their production.

In terms of economic impact, the budget officer predicts this level of carbon price would mean Canada’s real gross domestic product (GDP) in 2030 would be 0.35 per cent lower than the level under current policies.