Yesterday, the Government of Canada announced its proposed pan-Canadian benchmark for carbon pricing, which would serve as a major component of the Pan-Canadian Framework on Clean Growth and Climate Change. This announcement stems from the principles that were developed by the federal government and the provincial premiers in March 2016 under the Vancouver Declaration. Through the Declaration, the First Ministers committed to putting Canada on a credible path to meet or exceed our national target of reducing greenhouse gas (GHG) emissions by 30 percent below 2005 levels by 2030.
This announcement coincides with a meeting between Environment Minister Catherine McKenna and provincial counterparts, as they try to reach consensus with provincial and territorial ministers on the pan-Canadian plan. The Prime Minister made the announcement when leading off parliamentary debate on the ratification of UNFCCC Paris climate change agreement (which does not formally require approval in the House of Commons to be ratified).
Per the government’s press release, the goal is to ensure that carbon pricing applies to a broad set of emission sources throughout Canada with increasing stringency over time to reduce greenhouse gases (GHGs) at lowest cost to business and consumers. It is also meant to stimulate innovation, clean growth and jobs to support the transition to a low-carbon economy.
The benchmark includes the following elements:
- Timely introduction. All jurisdictions will have carbon pricing by 2018.
- Common scope. Pricing will be based on GHG emissions and applied to a common and broad set of sources to ensure effectiveness and minimize interprovincial competitiveness impacts. At a minimum, carbon pricing should apply to substantively the same sources as British Columbia’s carbon tax.
- Two systems. Jurisdictions can implement: (i) an explicit price-based system (a carbon tax like British Columbia’s or a carbon levy and performance-based emissions system like in Alberta), or (ii) a cap-and-trade system (e.g. Ontario and Quebec).
- Legislated increases in stringency, based on modelling, to contribute to our national target and provide market certainty.
- For jurisdictions with an explicit price-based system, the carbon price should start at a minimum of $10 per tonne in 2018, and rise by $10 per year to $50 per tonne in 2022.
- Provinces with cap-and-trade need: (i) a 2030 emissions reduction target equal to or greater than Canada’s 30 percent reduction target; (ii) declining (more stringent) annual caps to at least 2022 that correspond, at a minimum, to the projected emissions reductions resulting from the carbon price that year in price-based systems.
- Revenues remain in the jurisdiction of origin. Each jurisdiction can use carbon pricing revenues according to their needs, including to address impacts on vulnerable populations and sectors and to support climate change and clean growth goals.
- Federal backstop. The federal government will introduce an explicit price-based carbon pricing system that will apply in jurisdictions that do not meet the benchmark. The federal system will be consistent with the principles and will return revenues to the jurisdiction of origin.
- Five-year review. The overall approach will be reviewed by early 2022 to confirm the path forward, including continued increases in stringency. The review will account for progress and for the actions of other countries in response to carbon pricing, as well as recognition of permits or credits imported from other countries.
- Reporting. Jurisdictions should provide regular, transparent and verifiable reports on the outcomes and impacts of carbon pricing policies.
The Government indicated that it will work with the territories to address their specific challenges.
For Ontario, this means that the cap and trade system that has been put in place will go forward as planned, provided it meets the criteria highlighted above in the benchmark.