Abstract

In Canada, only a small number of industries, representing a small share of our economy, would face competitiveness concerns resulting from comparatively higher carbon prices. However, lowering carbon emissions and keeping businesses competitive require addressing these challenges. Provincial governments can do so effectively with targeted, transparent, and temporary policy measures.

Executive Summary

Carbon pricing in individual Canadian provinces—if not matched by equivalent carbon prices in other jurisdictions—can potentially create competitiveness pressures on individual economic sectors. A sector’s “carbon costs,” as a share of its GDP, and its “trade exposure” are two key determinants of these pressures.

Data analysis for British Columbia, Alberta, Ontario, and Nova Scotia suggests that these pressures are significant for only a few sectors, representing only
 a small share of total provincial economic activity. Overall, the business community should not perceive carbon pricing as a significant economic threat.

The identification of competitiveness pressures also relies on firm-level data that is generally not publicly available. Differences in cost structures among firms within a sector, firms’ abilities to influence their selling prices, the extent of firms’ responses to carbon pricing, and the stringency of policies in other jurisdictions
 all need to be examined to determine which firms
are genuinely exposed to competitiveness pressures. Policymakers will need access to firm-level data to assess the credibility of firms’ claims of significant exposure.

For those firms and sectors facing genuine competitiveness pressures, governments can design the carbon pricing policy to address these challenges while still retaining the policy’s overall effectiveness at reducing greenhouse gas emissions in a cost-effective manner. Any measures designed to
 support specific firms or sectors should be targeted, transparent, and temporary.

Deeper Dive