Putting a Price on Carbon

If Canada is to obtain a “clean energy future,” it needs to adopt a harmonized carbon tax.

Federal, provincial, and territorial energy ministers concluded their annual meeting last week by proclaiming a shared vision of Canada as a “global leader in secure and sustainable energy.” Energy conservation, the “transition to a lower-carbon economy,” and technological innovation are among the objectives for future intergovernmental collaboration.

That’s the good news. Worrisome and just as important, though, is what was not said. In particular, there was no acknowledgement of the profound tension between the development of Canada’s fossil-fuel resources – especially its tar sands – and its renewable-energy sources.

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It is not enough to pronounce a “clean-energy future” for Canada; federal and provincial governments must make it a reality through well-designed policies. It is particularly concerning that carbon pricing – which is arguably the most critical of those policies – is not even mentioned in the ministerial communiqué. Without a meaningful price on carbon emissions, Canadian governments’ efforts to promote conservation, reductions in greenhouse-gas emissions, and investments in clean-energy technologies will be (at best) unnecessarily costly and (at worst) ineffective.

Just four years ago, carbon pricing was all the rage. The federal government, and many provincial governments, committed to cap and trade. B.C. and Quebec adopted carbon taxes. Even the business community called on Canadian governments to send a clear carbon-price signal.

However, with the onset of a global recession, Canadians’ attention turned from climate change to the economy. The federal Liberals’ proposal for a revenue-neutral carbon tax crashed and burned in the 2008 election. Across the border, the U.S. Congress failed to pass cap-and-trade legislation.

The Canadian government, which previously advocated cap and trade, now espouses an old-fashioned – and much more costly – strategy of command-and-control regulation, though with no schedule for the roll out of the industry-specific standards necessary to meet its own targets. Provincial governments and U.S. states are now waffling or delaying their commitments to the Western Climate Initiative’s cap-and-trade program.

Are Canada's energy pipelines safe? Greenpeace and the Canadian Energy Pipeline Association debate the issue here.

While electoral pressure on politicians to act on climate change may have subsided, the threats that climate change poses to Canada’s future prosperity have not. Nor has the reality of what it will take to transition from our current economy, which is predicated on the exploitation of unsustainable fossil fuels, to a more sustainable future reliant on renewable energy. Perhaps it is time for Canada, like Australia and the European Union, to revisit carbon taxes.

Carbon taxes have several advantages over the other instrument for carbon pricing, cap and trade. For one thing, they can be readily applied to both small and large sources, whereas, to date, cap and trade has only been applied to large industrial sources. The costs of a carbon tax are transparent, which facilitates accountability with respect to government revenues and the design of measures to shield low-income consumers. Carbon taxes are simple to adopt and administer. B.C.’s tax was put in place in a matter of months, backed by 50-page legislation. In contrast, the failed Waxman-Markey bill in the United States weighed in at 1,500 pages, not including the thousands of pages of additional regulations that would have taken years to devise.