Lessons from several provinces in Canada on carbon pricing

A series of articles in policy options politiques take a closer look at the approach towards carbon pricing in several provinces of Canada.

In British Columbia, the carbon tax was adopted in 2008, gradually and predictably increasing through the years as policy experts recommended. The revenues collected from the tax were returned through low-income dividends, to avoid regressivity and through reductions in individual and corporate income tax rates, to deliver spillover economic benefits. The British Columbia carbon tax offers a number of both positive and negative lessons. On one hand research found that it reduced consumption of gasoline, residential natural gas and overall emissions. It also increased the use of fuel-efficient vehicles. On the other hand public misunderstanding of how environmental taxation works, coupled with higher visibility of costs and lower visibility of benefits puts carbon taxes at risk of populist attacks.

The province of Ontario embarked on a coal phase-out in 2003, which eliminated all coal-fired electricity production by 2014. This had important climate change implications and led to public health gains from reducing air pollutants associated with those activities. However, the phase-out of coal was combined with feed-in tariffs that provided higher fixed subsidies to new sources of renewable energy. The opponents of these measures blamed the feed-in tariffs for increasing energy prices, thus raising popular concerns. In 2014, the government announced a plan to implement carbon cap-and-trade, which would affect more than 80 percent of emissions in the province and set a 37 percent reduction goal by 2030. The government focused on promoting the economic development and greenhouse gas reduction aspects of the new plan, focusing less on the consumer and public health benefits. This triggered populist economic arguments against carbon pricing and led to a change in government that replaced the programme with a less ambitious one. The case of Ontario highlights the importance of carbon pricing politics and effectively communicating the public benefits.

New Brunswick is a small province where carbon pollution comes from a handful of large industrial facilities and forest-related activities. The few large carbon polluters enjoy structural power within the economy and the political system. Only in 2016, an all-party Selected Committee on Climate Change was established that reported to the government with diverse adaptation and mitigation recommendations. This led to the creation of the Climate Change Act, which was criticized as inadequate and then rejected by the Trudeau government. The federal government then imposed a carbon tax on New Brunswick consumers and redistributes revenues as income tax rebates. The case of New Brunswick is an example of a government that is not willing to impose costs on the energy and forestry industry, but ends up developing carbon prices when it is swept up in broader national efforts.

Canadian federal and provincial governments appear to be divided over carbon pricing.

Access the article on lessons from British Columbia’s carbon tax through this link.

Access the article on Ontario’s carbon price experience through this link.

Access the article on New Brunswick’s timid foray into carbon pricing through this link.

Access the article that examines the reasons that make meaningful action on carbon pricing so difficult in Canada through this link.