Considering that he is the UN’s Special Envoy for Climate Action and Finance, economist Mark Carney’s remarks on carbon pricing came as a surprise last May when he told a Senate committee the federal carbon tax had “served a purpose up until now.”
The former Bank of Canada governor suggested anyone who could do better should offer a “credible and predictable alternative.”
It turns out that an excellent alternative was proposed almost a decade ago, but the federal government apparently ignored it. In 2018, Simon Fraser University professor Mark Jaccard stated bluntly: “Carbon pricing is not essential to stop burning coal and gasoline. We economists only say it is because we prefer it. If we were honest, we would explain that decarbonization can be achieved entirely with regulations.”
Topics
However, many economists are firmly in favour of a carbon-price mechanism.
In March 2024, sensing that the Trudeau government was wavering under pressure from Pierre Poilievre’s “Axe the Tax” campaign, more than 400 economists signed an open letter defending the policy of placing a price on carbon.
The letter did acknowledge that other types of regulations and subsidies could also work, however the economists asserted that these measures would be more costly.
But has carbon pricing in Canada really served a purpose up until now?
It’s certainly true that Canada’s greenhouse gas (GHG) emissions have declined. Since 2005, they fell from 761 million tonnes of carbon-dioxide equivalent (MtCO2e) to 708 MtCO2e in 2022, the last year for which we have data. That’s a decline of just over 0.4 per cent a year.
Unfortunately at this miniscule rate, Canada won’t come anywhere close to hitting the federal government’s target of reducing emissions to 443 MtCO2e by 2030. To achieve that, emissions need to decline at an annual rate of 4.7 per cent a year — 10 times faster than the latest pace.
To examine this disparity more closely, let’s look at some performance metrics, starting with British Colombia’s carbon tax, which commenced in 2008.
From 2008 to 2015, emissions in B.C. dropped by about nine per cent (figure 1). But within the next three years they climbed back to where they started. By 2022, emissions were only one per cent less than they were when the tax was introduced 14 years earlier.
It’s difficult to call this a successful program, although some economists have tried, claiming that without the tax, emissions would have been much higher. There is, of course, no real evidence for this assertion.
In Quebec the record is also interesting.
Emissions declined slightly after the province commenced its cap-and-trade carbon pricing-program in 2013 (figure 2). But they rose from 2016 to 2019, by which time emissions were higher than when cap and trade was launched in 2013. Emissions then declined sharply, almost certainly due to the COVID-19 pandemic, before increasing yet again.
By 2022 Quebec’s GHG emissions were only 1.25 per cent lower than in 2013. Again, not a sterling performance. More importantly, Quebec’s emissions were declining even before cap and trade was introduced. Between 2005 and 2013, emissions fell seven per cent.
Ontario’s history also offers interesting insights.
Ontario’s fledging cap-and-trade system was introduced in 2017 but was shut down the following year by the incoming Ford government. In effect, Ontario never had a carbon tax until the federal government imposed its national program in 2019. But it looks as if Ontario has never really needed one.
GHC emissions declined steadily from 2005 to 2019, falling by 19 per cent (figure 3). In comparison, over the same period Quebec’s emissions fell by only five per cent and B.C.’s emissions rose by 1.6 per cent.
Finally, we should examine California, which joined up with Quebec in 2014 on its cap-and-trade carbon-pricing program.
California’s efforts to reduce GHG emissions appear quite successful, having trended downward for almost two decades. But we should note that, like Quebec, emissions began falling several years before its carbon-pricing program even started.
It’s not hard to figure out what’s going on here.
California’s Air Resources Board has a raft of regulatory measures and other instruments in place that aim to reduce the state’s emissions in compliance with an assembly bill called AB32 and other legislation. The key programs are the Renewables Portfolio Standard (2002), the Low Carbon Fuel Standard (2010) and, yes, the Cap and Trade program.
California’s emissions started to decline in 2007 immediately after legislators passed AB32 — the Global Warming Solutions Act of 2006 — which required the state to reduce GHG emissions to 1990 levels by 2020. It achieved this milestone in 2014, six years ahead of schedule, with little or no contribution from carbon pricing, which had only commenced the year before.
It’s worth noting that the state’s economy did not decline during this period. On the contrary, California’s Gross State Product rose by more than half a trillion dollars ($2017) from 2000 to 2014.
In 2002, the Renewables Portfolio Standard program was established by a Senate bill with the initial requirement that renewable resources provide 20 per cent of the state’s retail electricity sales by 2017. In 2015, the program was accelerated, mandating a 50-per-cent renewable target by 2030.
A fairer, more effective policy
Setting an across-the-board price on carbon is a strongly regressive policy. It is well-established that the wealthy have a much larger carbon footprint than those who are less well off.
In North America the top 10 per cent of income distribution emit almost seven times more carbon per capita than the bottom 50 per cent. The damage attributed to climate change is equally inequitable: three-quarters of all losses caused by climate change are suffered by the bottom 50 per cent of the income scale.
It is generally agreed that the “polluter should pay.” If so, the top-10-per-cent cohort of affluence should be paying a great deal more than they are at present.
A progressive income-adjusted carbon tax — coupled with well-designed regulations supported by incentives to accelerate the transition to greater generation from renewables — would be a more effective and much fairer policy.
Mark Carney’s observation offered the Liberal government a way out of its predicament. Declare victory: The carbon tax has served its purpose! Just imagine how much higher greenhouse gases would have been if the government had not put a price on carbon!
And as for the next step, let’s design and implement a progressive policy of targeted regulations, incentives, and excise taxes that will bring greenhouse-gas emissions down to the point where Canada might finally achieve one of its targets.
This article first appeared on Policy Options on Jan. 8, 2025. It is republished here under a Creative Commons license.
