Striving for equivalency across the Alberta, British Columbia, Ontario and Québec carbon pricing systems: the Pan-Canadian carbon pricing benchmark

Abstract

The Pan-Canadian Framework on Clean Growth and Climate Change is designed to put Canada on track to meet its Paris commitments. A key pillar of the plan is the introduction of a pan-Canadian carbon price by the end of 2018. However, four Canadian provinces, nearly 85% of the Canadian economy and population, have already implemented carbon pricing systems. British Columbia (BC) has a carbon tax. Alberta is transitioning from an output-based allocation system for industrial emitters to a hybrid system combining a carbon levy and refined output-based system. Québec and Ontario have implemented cap-and-trade systems, linked to California. Recognizing these existing systems, rather than impose a single carbon pricing mechanism, the Pan-Canadian Approach to Carbon Pricing gives provinces and territories the flexibility to adopt a carbon tax, a hybrid system, or a cap-and-trade system. To address concerns relating to ‘fairness’ and equivalency of carbon price, a federal carbon pricing benchmark establishes criteria relating to minimum ‘common scope’ and ‘increases in stringency’ that provincial and territorial carbon pricing systems must meet. This article explores the design features of the existing Alberta, BC, Ontario and Québec carbon pricing systems, and considers how the benchmark affects stringency and addresses equivalency of carbon price across these different systems.Key policy insights Canada is taking advantage of its federal structure of government to introduce a minimum pan-Canadian carbon price of $10/tCO2e in 2018, rising by $10/year to $50/tCO2e in 2022.Rather than imposing a uniform pricing mechanism, the Canadian federal government is recognizing existing subnational carbon pricing mechanisms with very different design features – BC’s carbon tax, Québec and Ontario’s cap-and-trade systems, and Alberta’s hybrid system – to deliver the pan-Canadian carbon price.In order to deliver a minimum level of increasing stringency and to address issues of equivalency of carbon price across sub-national jurisdictions, the federal government is in the early stages of implementing a federal carbon-pricing benchmark.The lessons learned from the Canadian experience will be relevant to harmonizing carbon pricing systems across both other federal jurisdictions and countries.