The first independent expert review of carbon pricing across Canada indicates jurisdictions are making progress, but changes will be necessary to ensure federal, provincial, and territorial systems are effective in reducing greenhouse gas emissions in the long term.
The Canadian Institute for Climate Choices was commissioned by Environment and Climate Change Canada to undertake an independent expert assessment of how each jurisdiction in Canada has approached putting a price on carbon emissions. The nation-wide assessment, which fulfils a commitment under the Pan-Canadian Framework on Clean Growth and Climate Change, examined how distinct jurisdictional policy choices create varying incentives to reduce emissions and result in different impacts on people and businesses. The expert review did not assess the overall effectiveness of Canada’s patchwork of carbon pricing systems.
The Institute’s detailed technical assessment was published by Environment and Climate Change Canada. A complementary summary report, produced and published separately by the Institute, identifies five challenges with carbon pricing in Canada, and offers recommendations for improvement.
The assessment found that, overall, carbon pricing has introduced incentives to reduce emissions across the country. While less than 40 per cent of emissions in Canada were subject to a carbon price before 2016, 78 per cent of emissions were covered by some kind of carbon pricing policy in 2020. However, the assessment also identified the top factors undermining the effectiveness of carbon pricing in Canada today, including:
- Regional differences in which sources of emissions are covered by carbon pricing, and which are exempt
- Misalignment among regions on the price applied to both consumer and industrial emissions
- Discrepancies in how industrial emissions are treated, which significantly dilutes long-term low-carbon incentives in most jurisdictions and creates risks to domestic competitiveness
- An overarching lack of transparency about design choices and outcomes, including how revenues are used
- A lack of clarity about how price signals will change after 2022
“Federal, provincial, and territorial governments have all moved fast to implement broad-based carbon pricing that can drive down emissions. It’s therefore no surprise to see some distinct regional differences in how carbon pricing systems work,” said Dave Sawyer, principal economist with the Canadian Institute for Climate Choices, and lead author of the 2020 Expert Assessment of Carbon Pricing Systems. “These regional variations can and should be accommodated, but only if they do not undermine the end-goal – effective, efficient, and fair emission reductions. Our assessment highlights the need for governments to work more cooperatively to ensure carbon pricing delivers on its promise.”
The Institute’s summary report offers five recommendations to make carbon pricing more transparent, cost-effective, efficient, equitable and compatible across Canadian jurisdictions—with the goal of establishing a stronger and more consistent price signal to reduce emissions nation-wide.
The expert review also underscored the need for federal, provincial and territorial governments to work with Indigenous Peoples to ensure regional perspectives and lived realities are better reflected and addressed in carbon pricing approaches.
“Carbon pricing will be critical for achieving Canada’s climate targets and attracting the financing necessary to transition to a competitive net-zero economy—but only if it is designed well,” said Dale Beugin, vice president of research for the Canadian Institute for Climate Choices. “Addressing the challenges we’ve identified through this assessment will make carbon pricing an effective backbone of Canadian governments’ collective efforts to address climate change in the decade ahead.”