On Monday, the federal government announced plans for a price on carbon, beginning at $10 per tonne in 2018 and rising to $50 per tonne in 2022. Since the announcement, there have been all manner of claims about what it will mean for the provinces and for average Canadians. Here are some of the common myths – and the reality:
Myth 1: The announcement was shocking to the provinces.
Reality: Unless the provincial leaders have been in a cave for the past year, the announcement of a federal minimum carbon price should come as no surprise at all. Justin Trudeau and his team said throughout the election campaign that, if elected, one of their first actions would be to put a federal price on carbon. It was repeated after the election. It was a key discussion point in all federal-provincial meetings. It was stated in the Vancouver Accord on Clean Growth and Climate Change. It was signaled throughout the summer. And with a vote on ratification of the Paris Climate Agreement coming any day, it was pretty obvious the pricing announcement was imminent.
Myth 2: The decision was a unilateral move by the Trudeau government.
Reality: Not exactly. The provinces are being offered a framework that has been discussed for almost a year: there will be a minimum price set federally, but the provinces can do whatever they want, so long as their carbon pricing system at least meets the federal minimum. Yes, the minimum is unilateral, but otherwise, this is about as flexible as a federal “tax” could possibly be.
Myth 3: This is a federal government tax grab.
Reality: Flat out false. The proceeds from federal carbon tax – a tax only imposed if a province decides against creating its own pricing system – would be returned to the provinces.
Myth 4: The carbon price is not revenue-neutral / The carbon price will increase tax bills for Canadians.
Reality: Not necessarily. First, the provinces can choose their own carbon pricing system. So it can be revenue neutral, as in the case of British Columbia’s carbon tax. Second, even if a province refuses to implement its own pricing system, and is thus required to pay the federally required minimum tax, the proceeds come back to the province. The province could therefore choose to return it to the citizens.
Myth 5: The carbon price will cripple the resource industry.
Reality: Not really. Only companies that have been paying zero attention to science, Canadian politics, global trends, etc. over the past 20 years will be unprepared. A 2013 study of ten energy companies operating in Canada showed that seven of the ten had adopted a “shadow” carbon price for making decisions, and the other three had informally examined carbon pricing. The “shadow” prices ranged from $15 to $68 per tonne, right in the range proposed by the federal government. In other words, the companies have been preparing for a price on carbon for years. For resource and energy companies, having a system finally in place is much preferable to years of policy uncertainty.
To be clear, I’m not defending the structure of the system. The price is far too low, on its own, to bring Canada close to its target of a 30% reduction in greenhouse gas emissions below 2005 levels by the year 2030, let alone for Canada to play its part in avoiding the global temperature limits agreed to in Paris. But we have to start somewhere. You have to crawl before you can walk, and walk before you can run.
The pricing plan may be a crawl. At least we are finally out of the crib.