Canada proposes rising carbon price to 2030

The Canadian government has released a plan to significantly increase carbon prices annually to 2030 as part of a wider proposal to put the country on a path to achieve net-zero emissions by 2050.
 

Published 11 December 2020, “A Healthy Environment and a Healthy Economy” proposes increasing the Canadian price on CO₂ by CAD 15 (USD 11.74) per year starting in 2023, rising to CAD 170 (USD 133) per ton in 2030. The price increases would be implemented through the federal mechanisms in the Pan-Canadian Framework, meaning they would be applied to the provinces and territories that have implemented an explicit price-based system, either through a carbon tax or a hybrid system comprising a carbon levy on fuels and an output-based pricing system (OBPS) for industrial emitters.

Jurisdictions with an explicit price-based system are required to increase the carbon price of these instruments by CAD 10 (USD 7.84) per year to reach CAD 50 (USD 39.20)/tCO2e by 2022 in order to meet the minimum level of stringency. The plan would extend and raise annual price increases after 2022 to CAD 15 (USD 11.74) per ton, reaching CAD 170 (USD 133) by 2030. The majority of Canada’s provinces and territories have implemented their own carbon tax, cap-and-trade systems, or OBPS-type policies.

Published 11 December 2020, “A Healthy Environment and a Healthy Economy” sets out a series of 64 strengthened and new federal policies, programs, and investments. The plan follows the introduction of the Canadian Net-Zero Emissions Accountability Act to parliament earlier this year.

“A Healthy Environment and a Healthy Economy” builds on the 2016 Pan-Canadian Framework on Clean Growth and Climate Change, which laid out a system for pricing carbon across Canada. Provinces and territories are required to implement a carbon pricing system with a minimum level of stringency, choosing between a broad cap-and-trade system covering most combustion emissions (including large industry) or a combination of a carbon tax and output intensity-based baseline-and-credit system. If a province or territory does not implement a carbon pricing system that meets these standards, they are subject to federal backstop measures, which consist of a carbon tax (“federal fuel charge”) and an output-based pricing system (OBPS, known as a “federal pricing system for large industry”) for large industrial emitters.

The updated climate plan states that the Canadian government will continue to return all proceeds from the federal fuel charge back to Canadians in participating provinces through a Climate Action Incentive payment, with additional revenue given specifically to Canadians living in rural communities and smaller towns. These payments will move from annual to quarterly payments starting as early as 2022. Four provinces, Alberta, Saskatchewan, Manitoba, and Ontario have issued legal challenges against the federal backstop, with the Supreme Court expected to issue a decision regarding its constitutionality in 2021.

“A Healthy Environment and a Healthy Economy” also states that in light of the increased carbon price, the Canadian Clean Fuel Standard will be narrowed to cover only liquid fossil fuels, like gasoline, diesel, and oil, which are mainly used in the transportation sector. The plan also highlights Canada’s interest in exploring the potential of implementing border carbon adjustments and states that the Canadian government will discuss the topic with its international partners.
 

Finally, the updated climate plan commits to a review of the standards used to assess the federal benchmark criteria in 2022.