Why the Ecofiscal Commission is intervening in the carbon-pricing court case

Climate and Energy

This week, the Ecofiscal Commission will participate as an intervener in the Saskatchewan government’s court challenge of the federal carbon pricing policy. We will not be there to support the federal government; nor will we be there to support the Saskatchewan government. We’ll be there to support carbon pricing.

We support carbon pricing for several reasons. Because it works. Because it reduces greenhouse gas emissions at the lowest possible economic cost. Because it can drive clean innovation. Because we can design it to protect business competitiveness and low-income households. And we can back up these claims with real-world evidence—including from Canadian provinces. In short, a well-designed carbon-pricing system makes economic sense as the foundation for Canadian climate policy.

We have argued that provinces can and should take the lead by tailoring carbon-pricing policies to their own contexts and priorities. The Pan-Canadian Framework on Clean Growth and Climate Change created precisely this flexibility. It encourages provinces to design their own carbon-pricing systems—whether carbon taxes, cap-and-trade systems, or hybrid approaches. And this is exactly what most provinces have done. Saskatchewan itself has made use of this flexibility, and the federal government accepts its output-based performance standard for large emitters as a legitimate carbon-pricing system.

Critically, the Framework ensures that all revenue raised by the federal carbon price stays in the jurisdiction in which it is generated. In Saskatchewan, for example, carbon pricing revenue could be used to completely eliminate provincial business income taxes, creating a powerful draw for investment and economic activity.

For Canada as a whole, however, carbon pricing will work best when it is coordinated across the provinces. If we are serious about meeting our global commitments to reduce emissions, every province must do its share of the work. And if we are to minimize economic costs overall, we must seek out low-cost reductions wherever they are and create a level playing field across the country. A coordinated carbon-pricing policy can achieve this outcome.

The current federal “backstop” creates a pathway for achieving this coordination. It encourages each province to implement its own carbon-pricing policy, as long as it meets a minimum level of stringency and coverage. But it also recognizes that Canada’s emission-reduction effort will be most effective—and least expensive—when all provinces move together. As result, the “backstop” policy will only apply in those provinces or territories that choose not to implement their own carbon price.

Coordinating around pricing makes economic sense. Other policies, such as regulations and subsidies require more administrative effort, more political intrusion, and more complexity—and the result is higher costs for Canadian families and businesses. Ecofiscal analysis from 2015 found that meeting Canada’s 2020 climate targets using coordinated carbon pricing rather than inflexible regulations would save 3.8% of Canada’s GDP, or about $80 billion per year. Those resources could be better used on family activities, business development, or valuable public goods.

Higher costs within any one province will have ripple effects beyond its borders. Any province that chooses not to use carbon pricing will either pay more than necessary to reduce its emissions or will reduce fewer emissions in total. In the latter case, if Canada is to achieve its overall target, those emissions reductions will have to come from other provinces—at greater cost to them and to the country.

Here’s the bottom line: Canadians want action on climate change, a problem whose urgency is only growing. Yet the conversation about how we will take action remains a source of debate. The evidence, however, is clear: more than other policy approaches, coordinated carbon pricing can reduce greenhouse-gas emissions, maintain a strong economy, and respect the role of provinces. And as we engage in debates around climate policy in Canada, we should rely on the best available evidence, both inside and outside the courtroom.

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  1. Doug Sanden

    Well said. If something has gone wrong with the Pan Canadian Framework, its that no one was selling it aggressively to the public -likely diffusion of responsibility with feds leaving it to provinces, and provinces leaving it to feds- while some politicians used public initial mis-understandings to form a political wedge issue, or -for a few provinces I suspect- a chance to play both sides by appearing to protest to get votes on one side, and making sure their plan fails the federal benchmark so they get the fed backstop and get votes on the other side. And not to blame the public – I’ve read studies looking at the issue of initial public resistance to carbon pricing in US and Australia. Things such as ‘salience’ and ‘confusion over short- vs long-term price elasticity’ make it seem unattractive initially. Thankfully ecofiscal.ca has provided a place people like myself can give a link to, to help clear up some misunderstandings and provide non-partisan credibility. Thank you.
    – study “Overcoming Public Resistance to Carbon Taxes”

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