The following letter is in response to a Corporate Knights article published on January 17, 2022, Canada’s biggest emitters pay the lowest carbon tax rate.
I would like to thank Corporate Knights for providing a public forum to examine issues surrounding pollution pricing in Canada, particularly as they relate to large industrial emitters. For too long, Canada has delayed pricing pollution across the economy on the grounds that it would put us at a disadvantage relative to our trading partners. This effectively gave veto power over climate action to the slow-moving ones.
No more. Since 2019, the Government of Canada has implemented a price on pollution that enshrines the polluter pays principle while ensuring that industry does not move 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 established for similar provincial and territorial systems.
The average price per tonne of emissions, which fronts your assessment, misses most of the exercise.
Under the federal output-based pricing system, each tonne of carbon reduced by an industrial facility is worth the full carbon price, or nearly so – currently $50 a tonne. Facilities that are more efficient than the industry average earn the carbon price in salable credits for each new tonne of reduction, while less efficient facilities pay full price for each additional tonne. This means that the worst emitters have the greatest incentive to reduce the amount they pollute during production. All revenues stay in the province where they were collected and are reinvested in technologies that achieve greater emission reductions from the same industries. And companies stay competitive instead of just pushing toward jurisdictions without environmental regulations.
The key to this system is predictability and consistency over time. After establishing the benchmark price that we consistently apply, we are providing certainty for industry and investors with a very public price reassessment through 2030. Updated criteria that provincial systems must meet (the price of benchmark) for 2023-2030 were released on August 5, 2021. A public comment period on proposals to strengthen the federal performance-based rating system ends on January 24 and proposed regulations will be released in the first half of of this year, with the final regulations coming into force next January.
The updated benchmarks are designed to ensure that carbon pricing leads to meaningful reductions across the economy and will require both broader coverage of greenhouse gas emissions and an increasing minimum price until 2030. New rules for industrial systems will ensure that carbon pricing gives a strong incentive to all of their emissions.
As the International Energy Agency said this month in its five-year assessment of Canada for 2022: “The proposed carbon pricing trajectory is arguably one of the most ambitious in the world.
It is also important to note that the pricing system not only encourages technological innovation up to $170 per tonne by 2030, but will be complemented by other investments and measures designed to encourage innovation, including the Regulations on clean fuels and tax incentives for CCUS.
As the IEA’s authoritative report states, “Since the IEA’s last comprehensive review in 2015, Canada has made a series of international and domestic commitments, setting it on a path of ambitious transformation of the energy system and climate transition by 2050.
I welcome the thorough review of Canada’s pollution pricing systems, because predictable and continuous improvement will be the key to reducing emissions while fostering a healthy, innovative and sustainable economy.
Steven Guilbeault is Canada’s Minister of Environment and Climate Change.