In 2018, Canada passed a federal carbon pricing law in an effort to reduce greenhouse gas emissions. The Greenhouse Gas Pollution Pricing Act was designed to not interfere with any provinces that had independently put a price on carbon, so long as a province’s system met the requirements of the federal law. In provinces that hadn’t acted, the federal scheme would kick in instead.
That scheme involved a tax on fuels starting at CAD$20 per ton of CO2, rising to CAD$50 by 2022.
On Friday, the government announced its plan for the program through 2030. Although the price was increasing by CAD$10 each year through 2022, it will now go up by CAD$15 each year afterward. That means it would reach CAD$170 per ton of CO2 in 2030—notably higher than current prices around the world. For this reason, the announcement also notes that the government will “explore the potential of border carbon adjustments”—a type of import tax meant to protect domestic industry from goods produced in countries without similar carbon taxes.
It all goes back
The tax revenue is distributed back to the populace, with 90 percent going to individuals and 10 percent used for businesses and institutions (including hospitals) that can’t really pass on increased costs. Individual payments are scaled progressively based on income, and the government estimates that 80 percent of households should receive a bit more than they paid. Of course, if you can reduce fossil fuel use, you’ll pay less in increased costs while still receiving the same rebate payment, providing additional incentive.
A separate portion of the program established a cap-and-trade system for large industry, setting a limit on emissions and proportionally assigning permits that can be traded.
These new, higher prices will substantially increase the tax revenue that gets redistributed. The cost also means that some of the more expensive forms of emissions mitigation—like capturing CO2 from smokestacks or ambient air and injecting it underground—can become economically viable.
Canada’s goal is for its 2030 emissions to be 30 percent below 2005 levels, and the new carbon prices were selected to achieve that. The announcement also includes CAD$15 billion in other initiatives, including subsidies for home energy efficiency improvements and electric vehicles.
Costs and payments
According to CBC News, the 2030 carbon price would add about CAD$0.38 per liter to the cost of gasoline. (It currently averages around CAD$1.00-1.20 per liter.) But the rebate payments in 2030 would range (based on the average fuel expenditures of each province and territory) from around CAD$2,000 to almost CAD$4,000 per year for a family of four.
As for the provinces running their own carbon tax program, like British Columbia, the federal government says it will review the current requirements and “engage with provinces and territories as well as with Indigenous Peoples on these proposals over the coming months.” Provincial programs are currently required to at least equal the federal price by 2022, though, so they may have to follow the same 2030 timeline.
Court cases challenging the constitutionality of the 2018 law are ongoing, but none has been successful so far.