Momentum Builds for Pricing Carbon Pollution

“The scientific case for prioritizing action on climate change is clearer than ever. We have little time before the window of opportunity to stay within 2ºC of warming closes. To keep a good chance of staying below 2ºC, and at manageable costs, our emissions should drop by 40 to 70 percent globally between 2010 and 2050, falling to zero or below by 2100. We have that opportunity, and the choice is in our hands”. R. K. Pachauri, Chair of the Intergovernmental Panel on Climate Change, November 2, 2014[i]

“Pricing carbon is inevitable if we are to produce a package of effective and cost-efficient policies to support scaled up mitigation”. World Bank Statement: Putting a Price on Carbon, June 3, 2014[ii]

The implications of the latest scientific assessment on climate change is clear:  To have the greatest chance of minimizing climate disruption to levels people, plants and wildlife can manage, global greenhouse gas emissions (GHG) growth must end almost immediately, with emissions in developed countries falling to almost zero within the next two to three decades[1].  Given that the vast majority of the greenhouse gases disrupting the climate come from burning carbon-based fuels like coal, oil and gas, the transition to zero carbon pollution implies replacing this dirty energy with clean energy. An efficient mechanism for encouraging this transformation endorsed by investors and economists is carbon pricing.

Carbon pricing is generally understood to be a market-based approach that internalizes the cost of pollution by applying a levy on emissions, usually based on the carbon content of the pollution source, or by capping industry emissions and allowing companies covered by the cap to trade allowances (i.e., oil and gas producers, fuel distributors, electricity producers, mining, cement). Firms with emissions in excess of their cap can purchase allowances they need to comply from firms that have succeeded in cutting emissions to below their cap. Trading helps facilitate lower overall compliance costs. Both approaches – levy and cap-and-trade – send a price signal to producers and consumers that tilt purchasing decisions toward less polluting products.

As noted by the World Bank’s 2014 report on carbon pricing trends[iii] carbon levies and cap-and-trade systems are not the only way to price carbon: “Other policies that implicitly price GHG emissions, such as the removal of fossil fuel subsidies, fuel taxation, support for renewable energy, and energy efficiency certificate trading are also needed,”(p.23).  Cap-and-trade, for example, is expected to contribute 23 percent of California’s GHG reductions by 2020[iv]; clearly, a comprehensive climate protection plan includes complementary measures, but carbon pricing is essential to reaching climate protection goals.

The World Bank statement calling for carbon pricing in June 2014 has been endorsed by 73 countries and over 1,000 businesses[v]. Almost 350 investors representing more than $24 trillion U.S. in global assets called on governments in 2014 to “provide stable, reliable and economically meaningful carbon pricing that helps redirect investment commensurate with the scale of the climate change challenge”.[vi]” There is growing support for carbon pricing in Canada as well. Ontario and Quebec also have agreed to collaborate on “market-based” mechanisms as “an effective way to curb climate changing emissions while promoting sustainable economic advancement within a competitive global economy”[vii]. Winners of the Clean50 award, a program sponsored by Delta Management Group, recognizing Canada’s sustainability and clean tech leaders also has called for “setting a price on carbon at some specific date in the future, that would reduce other taxes, and provide an incentive for businesses and individuals to take steps to reduce their use of carbon”.[viii] Finally, Canadians are coming on board too. A poll conducted by The Environics Institute for the David Suzuki Foundation found that 61 percent of people living in Ontario and Atlantic Canada supported a B.C. style carbon tax.[ix]

Early experience with carbon pricing in North America shows that it works as demonstrated by case studies on the effects of the B.C. carbon tax and the Regional Greenhouse Gas Initiative (RGGI) in the northeast U.S.[x] In B.C., the carbon levy covers about 70 percent of the province’s carbon pollution and has contributed to a 16.1 percent decline in per capita fossil fuel use from 2008 to 2013. During this same period, the province’s per capita gross domestic product grew by 1.75 percent versus 1.28 percent for Canada[xi]. The $1.2 billion in revenue raised by the carbon levy is used to reduce corporate and personal income taxes, as well as provide low-income tax credits.  B.C.’s carbon tax, now at $30/tonne, has been effective in helping the province reach its 2012 target of 6 percent below 2007 levels[xii]. To reach its deeper reduction goal of 33 percent below 2007 by 2020, however, requires additional action, including increases in carbon tax levels or the addition of other carbon pricing mechanisms. According to Environment Canada, without additional action B.C. could miss its target by as much as 29 Mt CO₂ eq. (million tonnes of carbon dioxide equivalent).[xiii]

In the U.S., RGGI, which covers Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont regulates fossil-fuel powered electric generating plants through a carbon trading system. Allowances are auctioned with revenues – currently over $1.8 billion – invested in consumer benefit programs that further reduce GHG emissions and lower the cost of the cap-and-trade program; primarily energy efficiency and renewable energy programs. Since RGGI was launched in 2009, emissions have dropped 2.7 times faster than the rest of the country while RGGI states’ economies have grown 2.5 times faster than other states[xiv].

In January 2013, Quebec joined California under the Western Climate Initiative (WCI) to implement a GHG cap-and-trade program; restricting emissions from major sources while permitting trading and pre-approved offsets for compliance purposes. California’s program is the largest in the world after the European Union’s emissions trading system. Regulated entities will reduce greenhouse gas emissions by 16 percent between 2013 and 2020 (contributing 23% of the state’s total reductions to 2020; other actions, include: low carbon fuel standard, 19% of total reductions and a renewable electricity standard, 14%)[xv]. The cap-and-trade program will make a significant contribution to California’s success in meeting its 2020 target of stabilizing greenhouse gas emissions at 1990 levels. As of 2015, with the addition of fuel distributors, 85 percent of state/provincial emissions will be covered by the cap-and-trade system.

Quebec, with a target of 20 percent below 1990 levels by 2020, credits the cap-and-trade system with ensuring it meets its 2020 target. Quebec projects $2.7 billion in revenue from auctioning between 2013 and 2020, which will be used to invest in further emissions reductions and climate change adaptation[xvi]. Alberta, under its Specified Gas Emitters Regulation covering about half of the province’s emissions, allows industry to meet their requirement to cut emissions intensity 12% compared to the average 2003-2005 intensity either by taking action internal to operations or to pay up to $15/tonne of greenhouse gas reductions secured through the purchase of offsets or contributions to the Climate Change and Emissions Management Fund. Alberta’s regulation expired in September 2014.

Momentum is building toward using carbon pricing mechanisms as an important contribution to achieving ambitious greenhouse gas reductions. As premiers and territorial leaders negotiate a national energy strategy for spring 2015, all provinces and territories, but particularly Alberta and Ontario have an opportunity to increase the effectiveness of their current approaches by committing to carbon pricing mechanisms. According to Ontario’s Environmental Commissioner, Ontario, while meeting its 2012 target of 6 percent below 1990 levels, is not on track to meet its 2020 target of 15 percent below 1990 levels. Greenhouse gas emissions in Ontario are currently projected to exceed the target by 28 Mt CO₂ eq.[xvii] Alberta, according to its Auditor General, will exceed its 2020 target of growing greenhouse gas emissions to 260 Mt CO₂ eq. from 170 Mt CO₂ eq. in 1990[xviii]; projections by Environment Canada are that Alberta will hit 287 Mt CO₂ eq. by 2020[xix].

Climate Action Network Canada believes that Canada must seize the potential for growing a clean energy economy by putting a price on all carbon pollution so industry and consumers respond to market signals and shift their energy consuming behaviours. We welcome the leadership of the provinces that have already taken the lead on implementing carbon-pricing regimes and Ontario’s commitment to follow suit. We also call on the federal government to become engaged given its role in ensuring national targets are met, establishing best practices, and facilitating integration of provincial carbon pricing regimes, as well as international linkages.

Increasingly, according to the World Bank[xx] jurisdictions are opting for a combination of levy and cap-and-trade.  “The choice between these instruments is less important than getting the design details right…Careful use of the income stream can improve the effectiveness of the policy instrument” (p. 15).  We believe that well designed carbon pricing regimes ensure that revenues are used to facilitate a fair transition to a clean energy system. A cap-and-trade system, for example, works best when all permits are auctioned and where there is broad coverage. Carbon pricing revenues, whether generated federally or provincially/territorially, could fund green infrastructure, efficiency, conservation and clean energy investments, and contribute to tax shifts that lower income taxes and the cost of labour. It is particularly important that all clean energy system policies, including carbon pricing, plan for protection of the most vulnerable in our society, Aboriginal communities and those living on low or fixed incomes.

Who We Are

Climate Action Network Canada – Réseau action climate Canada (CAN-Rac Canada) CAN-Rac is a coalition of more than 100 organizations from across the country working together to advance climate protection and to promote sustainable and equitable development. It is the only network in the country that brings labour, development, faith-based and First Nations groups together with the key national and provincial environmental organizations working on climate change. The network plays a critical role in helping Canadian organizations understand and respond to climate change impacts and policies in Canada and around the world and to coordinate their collective work on this issue to maximize their collective impact. CAN-Rac is unique in the Canadian climate movement because it is the only organization with a mandate to promote the climate movement as a whole, rather than the interests and programs of any one organization.

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