September 15, 2016 – Ottawa should establish a nationwide floor price for carbon, according to a new C.D. Howe Institute report. In “Carbon Copies: The Prospect for an Economy-Wide Carbon Price in Canada,” author Tracy Snoddon argues that a single economy-wide carbon price is required to achieve emissions reductions at the lowest possible cost.
“Canada’s decentralized, interprovincial approach to carbon pricing is appealing,” states Snoddon. However, despite recent initiatives, provincial efforts so far have failed to achieve a single Canada-wide carbon price, and Canada is not on track to achieve its national emissions reduction target for 2030. “Differences in carbon pricing approach, climate policy stringency, energy sources, and economic drivers have proven difficult to overcome through provincial action alone,” she adds.
The study states that a single price on carbon would ensure that emissions reduction occurs where it is cheapest to do so. Carbon price differentials also have consequences for competitiveness, encouraging mobile emissions-generating businesses to move from higher- to lower-carbon-price jurisdictions.
Accordingly, Snoddon recommends that the federal government:
- take an active role in carbon pricing with the aim of achieving a single economy-wide carbon price and improving the cost effectiveness of emissions reductions in Canada;
- implement a national carbon price floor and a federal carbon tax, to work alongside decentralized provincial policies to reduce – and eventually eliminate – carbon price differentials, to improve the prospects of Canada’s achieving its 2030 emissions reduction target and to facilitate linking with other carbon-pricing systems in the longer term; and
- return to each province any federal carbon tax revenues collected.
Snoddon concludes that by implementing this proposal, the federal government can do what provincial action on its own cannot – eliminate differences in provincial carbon prices to ensure cost-effective emissions reductions and establish a workable framework for increasing the carbon price over time to achieve longer term emissions reduction goals.
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.
For more information contact: Tracy Snoddon, Associate Professor, Economics, and Associate Director, Viessman European Research Centre, Lazaridis School of Business & Economics; or Benjamin Dachis, Associate Director, Research, at the C.D. Howe Institute: 416-865-1904, or email: firstname.lastname@example.org.