The following letter is in response to a Corporate Knights story published on January 17, 2022, Canada’s biggest emitters are paying the lowest carbon tax rate.
I’d like to thank Corporate Knights for providing a public forum to examine issues surrounding pollution pricing in Canada, particularly as it relates to major industrial emitters. For too long, Canada delayed pollution pricing across the economy using the rationale that it would put us at a competitive disadvantage to our trading partners. This effectively gave a veto on climate action to the slowest movers.
No more. Since 2019, the Government of Canada has implemented a price on pollution that entrenches the polluter pay principle while ensuring industry does not relocate to jurisdictions with weaker environmental regulations. These two imperatives – polluter pays, and a level playing field that protects Canadian jobs – are at the heart of the regulations that make up the federal Output-Based Pricing System and the minimum criteria we have set for similar provincial and territorial systems.
The average price per tonne of emissions, which headlines your assessment, misses the point of the exercise.
Under the federal Output-Based Pricing System, every tonne of carbon reduced by an industrial facility is worth the full carbon price, or close to it – currently $50 per tonne. Facilities that are more efficient than the industry average earn the carbon price in saleable credits for every new tonne of reduction, while less efficient facilities pay the full price for every extra tonne. That means the worst emitters have the biggest incentive to reduce the amount they pollute during production. All revenues remain in the province where they were collected and are re-invested into technologies that achieve greater emissions reductions from the same industries. And businesses stay competitive as opposed to simply pushing to jurisdictions without environmental regulation.
The key to this system is predictability and consistency over time. Having established the benchmark price that we consistently enforce, we are providing industry and investor certainty with a very public reassessment of pricing out to 2030. Updated criteria that provincial systems must meet (the benchmark) for 2023-2030 were published on August 5, 2021. A public consultation period on proposals to strengthen the federal Output-Based Pricing System ends January 24, and proposed regulations will be published in the first half of this year, with final regulations coming into force next January.
The updated benchmark criteria are designed to ensure that carbon pricing drives significant reductions throughout the economy and will require both broader coverage of greenhouse gas emissions and an escalating minimum price through 2030. New rules for industrial systems will make sure that the carbon price gives a strong incentive to all of their emissions.
As the International Energy Agency stated this month in its 2022 five-year assessment of Canada: “The proposed carbon pricing trajectory is undoubtedly one of the most ambitious in the world.”
It is also important to note that the pricing system not only incentivizes technological innovation up to $170 per tonne by 2030, but will be complemented by other investments and measures designed to encourage innovation, including the Clean Fuel Regulations and tax incentives for CCUS.
As the authoritative IEA report states, “Since the IEA’s last in-depth review in 2015, Canada has made a series of international and domestic commitments, putting it on a path toward achieving an ambitious energy system transformation and climate transition by 2050.”
I welcome the thoughtful examination of Canada’s pollution pricing systems, as predictable, steady improvement will be the key to reducing emissions while growing a healthy, innovative and sustainable economy.
Steven Guilbeault is the Canadian minister of environment and climate change.