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Policy
| 12/14/16

Why did BC’s premier get carbon-tax cold feet in Ottawa?

TCE

Prime Minister Justin Trudeau reached an agreement last Friday with most of his provincial and territorial counterparts to achieve Canada’s first national climate and energy plan—a move intended to put the country on a path to meeting its international greenhouse gas reduction commitments by 2030.

The provinces signed up to a series of fresh mitigation goals, including achieving new net-zero emission building codes, a build-out of more charging stations for electric vehicles, and an expansion of electricity transmission capability.

Core to the federal government’s strategy is a demand that all jurisdictions adopt a carbon price of $10 a tonne in 2018, rising to $50 a tonne by 2022. Provinces may use either emissions trading or carbon taxation as the mechanism to achieve these carbon prices.

For some jurisdictions, carbon-pricing mechanisms are already a reality. British Columbia (BC) has had a carbon tax since 2008, and Alberta has opted for carbon taxation also, while Ontario and Quebec have embraced emissions trading.

The only two non-signatories to the national plan—Saskatchewan and Manitoba—baulked over the carbon price clause. Saskatchewan’s premier Brad Wall claims carbon pricing will erode western industries’ competitiveness, and argues that his province’s efforts to commercialise carbon capture and storage (CCS) technology are a less expensive option for emissions reductions. Manitoba for its part said it would only sign up to the climate deal in return for increased federal spending on healthcare, although the province on Sunday appeared to have softened this stance, leaving Saskatchewan as the sole hold-out.

BC’s initial reluctance also to sign during Friday’s meeting however surprised commentators, given its past leadership on a carbon tax, currently frozen at $30 per tonne.

BC Premier Christy Clark said she was concerned that consumers and companies in provinces with carbon taxation would be paying a higher price for carbon than those with carbon trading. The Ecofiscal Commission, an Ontario-based environmental economics think-tank that backs carbon pricing, released an analysis in June that estimated that in 2020, Ontario would be paying $19.40 a tonne, and $27 a tonne in 2022.

Emissions trading introduces a hard cap on how much carbon pollution can be emitted, and is steadily ratcheted downward each year. A steadily declining amount of pollution permits are auctioned to firms who then trade them amongst each other. Emissions trading depends on successful auctions of such permits, but in both the European Union and California, jurisdictions with many years of experience with cap and trade, emissions permits have consistently traded at prices much lower than the level that it is projected would encourage decarbonizing behaviour amongst companies.

Premier Clark was worried that if auctions in Ontario and Quebec were insufficiently successful, her province would be at an economic disadvantage with its higher carbon price.

In the end, Clark signed up to the pan-Canadian agreement in return for a mechanism to ensure national equivalency of carbon pricing. The national carbon price will be frozen at BC’s $30 level in 2020. At which point, an independent study will assess whether the two systems are equivalent. An interim report will be delivered in 2020 and a final assessment in early 2022. BC will also be allowed to “determine its own path” after this point.

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Why did BC’s premier get carbon-tax cold feet in Ottawa?

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