Canada News
Canada may need additional carbon taxes to meet its Paris targets, PBO
The report was released the same day Environment Minister Catherine McKenna said the government would enforce the federal carbon tax in Alberta starting next January.
Alberta repealed its consumer carbon tax in May, though a separate tax on large industrial emitters in Alberta remains in place. (Pexels photo)
OTTAWA — Canada’s price on carbon will have to be five times what it is now if the country is to reach its Paris Agreement greenhouse-gas emissions targets just by charging for those emissions, Parliament’s budget watchdog says.
The current $20-a-tonne federal levy on fuels is set to rise to $50 a tonne by 2022. It applies in provinces that don’t have equivalent carbon-pricing systems of their own. The Parliamentary Budget Office says that may not be enough.
In a new report Thursday, the PBO says an additional levy that goes beyond fuels would have to start at $6 per tonne of emissions in 2023 and rise to $52 by 2030.
Combined with the current federal fuel charge, that would add up to $102 per tonne. The PBO estimates that would mean an additional cost of 23 cents for a litre of gasoline.
The report was released the same day Environment Minister Catherine McKenna said the government would enforce the federal carbon tax in Alberta starting next January. Alberta repealed its consumer carbon tax in May, though a separate tax on large industrial emitters in Alberta remains in place.
“We clearly need Alberta to be part of our national climate plan,” McKenna told reporters in Ottawa. She emphasized all revenues from carbon levy would be returned to the province through direct rebates and program spending.
The minister also said the national fuel charge will not increase beyond 2022.
McKenna reiterated that the government is committed to meeting the Paris targets and emphasized the role of factors other than the price on carbon, such as clean technology and infrastructure.
In a statement Thursday, Conservative Leader Andrew Scheer said the report proves the current carbon price is “another cash grab which is hurting already-overtaxed Canadians.” Scheer said he would scrap the current carbon tax if elected prime minister and that he will release his own climate plan June 19.
Under the Paris Agreement, Canada committed to reducing its emissions by 30 per cent from their 2005 levels, which works out to a target of 513 megatonnes of carbon-dioxide equivalents in emissions in 2030.
The PBO cites government estimates that Canada will reduce its emissions from 704 megatonnes in 2016 to 592 megatonnes by 2030 under its current policies — leaving a gap of 79 megatonnes.
The analysis assumes that additional carbon pricing is the only thing Canada would implement beyond already-announced climate change measures. It also assumes this new tax would be broadly applied across all sectors, except agriculture, and in all provinces and territories.
And it relies on projections that include already-announced federal government programs as well as the impact of land-use changes and forestry. They include the impact of Ontario’s cancelling its cap-and-trade system for reducing emissions, but not the scrapping of Alberta’s existing consumer carbon tax.
The analysis notes the effects of some spending on clean technology and public transit had not yet been modelled and were not included in Environment and Climate Change Canada estimates in 2018, which the report uses as its starting point.
The government could also do any number of things to reduce Canada’s emissions besides raising the price of carbon, the PBO acknowledges.
The costs the PBO projects are “actually quite modest” said Trevor Tombe, a professor in the economics department of the University of Calgary.
“This report shows that, coupled with other policy measures taken by the federal and provincial governments, the extent of carbon price increase is actually quite a bit less than we thought,” Tombe said.
He said governments could certainly pursue non-carbon tax approaches to emissions reductions, but that the cost per tonne of these “centrally planned” measures “tend to come with a higher cost per tonne.”
“There are lots of routes to meet our targets,” Tombe said. “The question we have to ask ourselves is: At what cost?”
The report provides estimates on several alternative scenarios. With fast GDP growth and high oil prices prompting more production in the western oilsands, the gap in emissions from the Paris targets nearly doubles, while a case of slow GDP growth and low oil prices would result in an outcome similar to the PBO’s baseline.
The PBO notes that in Environment Canada’s “Technology Case,” a scenario where Canada aggressively pursues clean technology, the country would exceed the Paris targets by 22 megatonnes.
The PBO also projects that the expanded carbon tax will reduce economic growth by an average 0.04 percentage points a year between 2023 and 2030, if the proceeds are rebated to taxpayers in lump sums the way the current carbon levy is. Combined with the effect of the current federal carbon charge, it estimates the cumulative cost of the current tax and a future, additional price would be about one per cent of real GDP by 2030.
