Canada’s carbon price needs to climb higher, be applied more broadly in order to hit Paris target, new report says


OTTAWA—Canada needs a much higher carbon levy that applies more broadly than it does now to make sure the country hits its emissions target under the Paris Agreement, according to a new estimate from the Parliamentary Budget Officer.

In a new report published Thursday, the PBO calculates how a higher price on greenhouse gas emissions can help Canada overcome projections that say it will overshoot its target under the international accord to fight climate change, which is to slash emissions to 30 per cent below 2005 levels by 2030.

The latest projections from Environment Canada say that, based on current measures and policies, the country will overshoot that target by at least 79 megatonnes of emissions.

Looking solely at the national carbon levy on fuel, the PBO says the price would need to climb twice as high as it is currently set to go to close that gap and hit the target.

“We decided to do this report and take that approach because that’s the government’s own approach, to price carbon,” said Yves Giroux, Parliamentary Budget Officer, when releasing the report Thursday morning.

Other policies can also reduce emissions — the Conservatives, for example, say they can fight climate change without a price on emissions — but Giroux said they looked at the additional pricing necessary because that is a key plank of the current Liberal government’s approach.

“If you go with carbon pricing, if you continue down that route, how much would you need to increase carbon price? … The government has not said or announced what it will do, and we thought it was important to put that number out in the public domain,” Giroux said.

“It’s up to parliamentarians and Canadians to decide what’s best.”

Titled, Closing the Gap: Carbon pricing for the Paris target, the PBO report says Canada’s carbon levy on fuel will need to climb to $102 per tonne of emissions to ensure the country hits the target. The levy is currently set at $20 per tonne, and is set to rise to $50 per tonne in 2022.

The PBO says it needs to go up to $56 per tonne in 2023 and keep rising to $102 per tonne in 2030.

This would translate to an extra 23 cents per litre of gasoline in that year, the PBO says.

But the report also says a federal carbon levy at these levels would need to apply more broadly than it does now. The federal minimum “backstop” was implemented this year in four provinces and two territories that refused to design their own prices that met Ottawa’s standards, or that requested the federal system in their jurisdictions. The price also doesn’t apply to all sectors of the economy, such as heavy industrial emitters that are subject to a separate pricing system based on the emissions-efficiency of their production.

To hit the Paris target with a carbon levy climbing to $102, the PBO report says the additional levy would need to apply to emissions from all industries except agriculture in all provinces and territories.

In other words, the PBO assumes provinces and territories with their own pricing systems — including B.C., Quebec and others — will also be subject to the additional carbon levy up to 2030 and that industries subject to the special emissions-efficiency system would pay more for their emissions.

In terms of economic impact, the PBO predicts this level of carbon price would mean Canada’s real gross domestic product (GDP) in 2030 would be 0.35 per cent lower than the level under current policies. Annual real GDP growth from 2023 to 2030 would be 0.4 percentage points lower.

The PBO also assumes that revenues from this levy would be returned to households, as is currently the case in provinces where the federal price is in place.

Alex Ballingall is an Ottawa-based reporter covering national politics. Follow him on Twitter: @aballinga

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