Canada has done what few other countries have been able to do — it has successfully passed a carbon tax.
Catherine McKenna, as environment minister of Canada, was tasked by Prime Minister Justin Trudeau to implement the policy, says the secret was to give the money back. Returning proceeds to households works, according to the Canadian government, because the amounts received by households do not depend on their energy consumption, so households are still rewarded for using less energy. Proceeds are also returned through targeted support to recognize the unique circumstances of the territories and Indigenous Peoples, such as high costs of living and energy, challenges with food security, and emerging economies.
Carbon pricing recognizes the cost of pollution and accounts for those costs in daily decisions.
The IMF indicates that a carbon tax could discourage the use of fossil fuels and encourage a shift to less-polluting fuels, thereby limiting the carbon dioxide (CO2) emissions that are by far the most prevalent greenhouse gas.
The IMF rationalizes the implementation of a carbon tax as follows.
- Carbon taxes, levied on coal, oil products, and natural gas in proportion to their carbon content, can be collected from fuel suppliers.
- They, in turn, will pass on the tax in the form of higher prices for electricity, gasoline, heating oil, and so on, as well as for the products and services that depend on them.
- This provides incentives for producers and consumers alike to reduce energy use and shift to lower-carbon fuels or renewable energy sources through investment or behavior.
The result? A carbon tax can generate immediate environmental and health benefits, particularly by reducing deaths that result from local air pollution. It would also raise significant revenue for governments which can be returned to communities as funding to counteract economic harm caused by higher fuel prices.
Look to Canada for Satisfied Citizens
Since 2019, every jurisdiction in Canada has had a price on carbon pollution. Canada put its “revenue neutral” price on pollution in 2018. First it was C$20 (US$15.20) per ton of emissions, with the understanding it would rise to C$170 by 2030. A government press release describes how putting a price on carbon pollution is widely recognized as the most efficient means to reduce greenhouse gas emissions while also driving innovation.
Critics — and there are plenty of them — disagree about the effects so far of Canada’s carbon tax. They say it has yet to drive down its emissions at the pace needed. That is because of the country’s bountiful oil and gas sector. McKenna says that as the price increases, it will begin to make a real impact.
Canada describes its approach as “flexible” and “ensures consistency and fairness for all Canadians.” Any province or territory can design its own pricing system tailored to local needs, or it can choose the federal pricing system. The federal government sets minimum national stringency standards (known as the federal ‘benchmark’) that all systems must meet to ensure they are comparable and effective in reducing greenhouse gas (GHG) emissions. If a province or territory decides not to price pollution, or proposes a system that does not meet these standards, the federal system is put in place.
The Canadian federal government published strengthened standards in August, 2021 for the 2023 to 2030 period.
The federal pricing system has 2 parts, and one or both parts can apply in a jurisdiction.
- A regulatory charge on fossil fuels like gasoline and natural gas, known as the fuel charge
- A performance-based system for industries, known as the Output-Based Pricing System
Both parts of the federal pricing system apply in Manitoba, Nunavut, Prince Edward Island, and Yukon. The federal fuel charge applies alongside provincial carbon pricing systems for industry in Alberta, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Saskatchewan.
Carbon pollution pricing systems in British Columbia, the Northwest Territories, and Quebec currently continue to meet the federal benchmark stringency requirements. As a result, neither parts of the federal pricing system applies in those jurisdictions.
Proceeds from the federal carbon pricing system remain in the jurisdiction where they were collected. Provinces and territories that requested the federal system receive these proceeds directly and can use them as they see fit.
In other jurisdictions, the federal government delivers all proceeds to individuals, families, and businesses through payments and climate action programs. This helps make carbon pricing affordable and enables households to make investments to increase energy efficiency and further reduce emissions.
Arguments For Why The US Should Implement A Carbon Tax
Brookings Institute research points to a carbon tax as part of a toolkit from which US President Biden can draw to pursue his ambitious climate agenda. Carbon pricing is positioned as “the most basic and effective tool to reduce carbon emissions, as much of the world has already discovered.” Moreover, these authors insist that, if the US continues to stand by while others move forward with carbon pricing, it “risks hampering progress towards climate mitigation goals, reducing the global competitiveness of American companies, and diminishing the credibility of its commitment to climate issues on the global stage.”
Acknowledging that the effectiveness of carbon pricing in reducing emissions depends in large part on their design, the researchers outline the many considerations that policymakers have to take into account when designing a carbon pricing system.
- How much should emitting a ton of carbon cost, and how should this amount change over time?
- Who should be responsible for paying the carbon price — fossil fuel producers, consumers, or someone in between?
- Will the carbon pricing scheme be a source of revenue, and how should this revenue be used?
They say that the idiosyncrasies of the design influence popular support for the pricing system, the net cost of emitting carbon, and the environmental justice implications of the system, all of which can shape the system’s effectiveness in reducing carbon emissions.
In summary, the Brookings Institute research suggests that implementing carbon pricing as part of the US development of a 21st century climate change mitigation strategy could accomplish 4 goals:
- Mitigate climate change
- Justify a carbon border tax
- Boost the global, long-term competitiveness of US companies
- Restore the US global reputation as a leader on climate issues
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