Carbon Copies: The Prospects for an Economy-Wide Carbon Price in Canada

Abstract

In stitut C.D. HOWE In stitute Essential Policy Intelligence | Conseils indispensables sur les politiques Canada's decentralized, interprovincial approach to carbon pricing is appealing. Provinces choose the carbon-pricing instrument, the level of climate ambition and how to recycle carbon-pricing revenues to suit their unique circumstances. But this approach has led to different carbon prices in different provinces, meaning that higher-cost emissions reductions are being undertaken when lower-cost abatement opportunities are available. 1 To achieve emissions reductions at the lowest possible cost, a single economy-wide carbon price is required. Could a decentralized, interprovincial approach deliver on this objective? Despite recent initiatives, provincial efforts so far have failed to achieve a single Canada-wide carbon price, and Canada is not on track to achieve its national emissions reduction target for

The impressive contribution of Canadian economists to fiscal federalism theory and policy

“…As well as analyzing the design of conditional grants, economists have studied their effects. Some Canadian examples include the effect of matching grants on social assistance expenditures (Baker et al 1999), the effect on provincial health and education spending of replacing matching grants with bloc grants for provinces (Coyte and Landon 1990), the impact of the same shift on the net distribution of revenues across provinces (Snoddon 1998) and the effect of conditional grants on spending by municipalities (Brett and Tardif 2008).…”

Canada's Carbon Price Floor

“…For example, in British Columbia revenues were used for a 5 percent reduction in the first two personal income tax rates, a low-income tax credit, reductions in the corporate income tax, an industrial property tax credit, and relief for northern and rural homeowners.13 For some recent discussion of Canada's carbon price floor see, for example,Bagnoli (2016),Sawyer andBataille (2016), andSnoddon (2016). Most prior academic literature on carbon pricing in Canada has focused on British Columbia's carbon tax, for example,Harrison (2013),Metcalf (2016),Murray and Rivers (2015), andPederson and Elgie (2015).…”

“…Some caveats might include: (i) some provinces may still want to negotiate with the federal government about how exactly they implement carbon pricing; (ii) Canada lacks climate governance infrastructure, including national stocktaking and carbon budgeting processes, and governments and industry have yet to agree on coordinated policies; and (iii) there are challenges in implementing abatement measures consistently across jurisdictions. See, for example,Bagnoli (2016),Sawyer andBataille (2016), andSnoddon (2016).…”

Canada's Carbon Price Floor

“…12 For example, in British Columbia revenues were used for a 5 percent reduction in the first two personal income tax rates, a low-income tax credit, reductions in the corporate income tax, an industrial property tax credit, and relief for northern and rural homeowners. 13 For some recent discussion of Canada's carbon price floor see, for example, Bagnoli (2016), Sawyer and Bataille (2016), and Snoddon (2016). Most prior academic literature on carbon pricing in Canada has focused on British Columbia's carbon tax, for example, Harrison (2013), Metcalf (2016), Murray and Rivers (2015), and Pederson and Elgie (2015).…”

“…Some caveats might include: (i) some provinces may still want to negotiate with the federal government about how exactly they implement carbon pricing; (ii) Canada lacks climate governance infrastructure, including national stocktaking and carbon budgeting processes, and governments and industry have yet to agree on coordinated policies; and (iii) there are challenges in implementing abatement measures consistently across jurisdictions. See, for example,Bagnoli (2016),Sawyer and Bataille (2016), andSnoddon (2016). ©International Monetary Fund. Not for Redistribution…”