Carbon Pricing – Made in Canada

The Ontario government has cancelled the previous government’s carbon pricing program, cap and trade. As a result Ontario will become subject to the backstop measures of the Pan Canadian Framework on Clean Growth and Climate Change. That plan includes a price on carbon pollution with rebates to individuals. But, our provincial government intends to fight this move in court based on a position that depends on the public not understanding what is happening. This article explains how the Canadian backstop plan will work.

The Pan Canadian Framework plan calls for a price on carbon pollution of $20 per tonne in 2019 rising predictably to $50 per tonne in 2022. This is equivalent to about 4 cents a litre on gas at the pump in 2019 rising to about 10 cents in 2022. 90% of the fees collected will be refunded equally to residents. The remaining 10% will help municipalities, hospitals, schools, universities, small and medium businesses, and indigenous communities.

You may have thought that a carbon tax is not fair, that it burdens low income people who can’t afford the extra cost. But a study by Canadians for Clean Prosperity concludes that “at almost all income levels and for almost all family types, families and households would receive more money back in carbon dividends than they would pay out in carbon taxes or indirect costs.”

That study shows that in Ontario the net benefit for a single parent family with one adult and one child, and an annual income of $20,000 would be $412 in 2020 rising to $670 in 2022. For a middle income family with two adults, two children, one car, and an annual income of $90,000, the net benefit would be $65 in 2020 rising to $152 in 2022.

This pattern occurs because wealthier households tend to buy more goods that have the price of carbon embedded in them. Therefore they will tend to pay more carbon fees but will get back the same rebate as everyone else, meaning that lower income households will benefit more from the plan than the wealthier.

A price on carbon will lead to job growth and economic growth in Ontario. As the price of fossil fuel based energy increases, businesses and people will be motivated to look to save on energy costs. Some of their decisions will lead them to explore new technologies including installing solar panels, and renovating buildings to be more energy efficient. Some people living in Ontario who now commute to jobs in Alberta will be able to return to their families and earn a living  right here at home.

There are about 40 countries and 24 cities, states, or provinces that have implemented a price on carbon. Many of these economies such as California, Sweden, and British Columbia have thrived and there is no evidence that other economies have suffered. For example Sweden implemented carbon pricing in 1991 and now has the highest carbon price in the world at about $170 per tonne. It continues to show economic growth similar to Canada’s while reducing greenhouse gas emissions by 23%.

Economists agree that the economy will not be negatively affected by a carbon price. In fact there is much evidence that the climate change impacts such as extreme weather events and health effects are already beginning to have a negative impact on the economy.

But there are those who say that a price on carbon is bad for the economy. For example, our Ontario premier claimed a couple of weeks ago that carbon taxes will bring on “a carbon tax recession”. His comments were met with a chorus of scorn by economists who demanded that he provide reputable evidence to back up his claim, which he has not done.

Most important – pricing carbon pollution works to reduce GHG emissions. For one thing it appeals to common sense. When the price of something goes up, we look to buy less of it or to find a replacement. But common sense often misleads us.

Fortunately in this case the facts and the experts back up our common sense. As shown by last year’s Nobel Prize-winning economist, William Nordhaus, putting a price on carbon pollution is the best tool we have to lower carbon pollution. It isn’t the only tool – it needs to be supplemented by regulations and support for innovative solutions, but it’s fundamental and reinforces these other measures.

But, the new Ontario government apparently believes that a price on carbon does not work, that it does not reduce emissions, and that we need our own “Made in Ontario” plan. The Ontario plan that has been put forward is a weak copy of the plan that Australia chose to replace their own carbon pricing plan. During the two years from 2012 to 2014 when Australia’s plan was in place their emissions went down measurably.  But when their plan was cancelled in 2014 and replaced by one similar to Ontario’s, emissions began to rise again wiping out the previous improvements in two years, and continuing to climb steeply. The chart on the right shows the story quite clearly.

Similarly the Ontario environment commissioner’s 2018 report showed that our cap and trade system was working to reduce emissions, and she saw no reason to think that Ontario’s new plan will have better results than Australia’s. We are lucky that Ontario’s court challenge to the federal plan is likely to fail and that we will have a carbon price here anyway.

So, the Canadian carbon pricing plan that is coming to Ontario is fair, it does not damage the economy, and it is instrumental in reducing carbon pollution. What can you do next?

Most important, ask your friends, colleagues, acquaintances, even strangers what they think about climate change, what they think about a price on carbon pollution. Just listen. Maybe gently suggest another way to look at it. Have a polite discussion. We need informed, engaged citizens.

And read more about the topic – start with the references to reputable sources that can fill you in on the details of what is written here.

Then, write to your Member of Parliament, the Minister of the Environment and Climate Change, and to the Prime Minister. Let them know that you are pleased with what their government is doing, but urge them to recognize that it’s not enough. Remind them that the October 2018 UN scientific report on climate change says the world must reduce greenhouse gas emissions 45% by 2030 and to zero by 2050 to avoid a climate crisis with more serious droughts, floods, forest fires, and heat-related deaths. This means taking aggressive action now.

References:

  • Canadians for Clean Prosperity. This report shows details of how the Pan Canadian Framework backstop will affect individuals and families. It recommends a program slightly different from the one implemented in the Pan Canadian Framework, but its conclusions remain valid. The difference is that the report recommends returning all revenues to citizens, but what will actually be implemented is only 90%.
  • Ecofiscal Commission. This report explains many details of the way that carbon pricing works.
  • 2 Degrees C. This blog entry shows how the rebates will affect citizens in all provinces subject to the backstop provisions of the Pan Canadian Framework.
  • Pembina Institute. This report shows the top five reasons why carbon pricing is good for Ontario.
  • Ecofiscal Commission. This report explains the PCF backstop in detail.
  • David Maenz. This presentation explains a lot about carbon pricing in Canada.
  • Price on Carbon. This web page explains the progress made in carbon pricing jurisdictions in the US.
  • Global News. This report explains carbon pricing for a TV audience.
  • Global News. This report explains for a TV audience why a carbon price will not harm the economy
  • Globe and Mail. This story asks that we stick to the facts when discussing carbon pricing.
  • The Guardian. This report explains why Australia’s new plan will fail to achieve the Paris targets.
  • The Energy Mix. This report shows the degree to which economists disagree with Doug Ford’s assertion that carbon pricing will harm the economy.
  • The New Yorker. This story gives an in depth analysis showing that we do not have to choose between economic health and combatting climate change.
  • Government of Canada. Here is the official documentation of the Pan-Canadian Framework on Clean Growth and Climate Change.
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