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Canada's Best Hope Of Meeting Emission Targets Is Hiking Carbon Price: Economists

A carbon price 10 times higher will be more cost effective than regulations and subsidies, a new report says.
 Activists rally for action on climate change on Sept. 27, 2019 in Montreal.
Minas Panagiotakis/Getty Images
Activists rally for action on climate change on Sept. 27, 2019 in Montreal.

TORONTO — The least painful way for Canada to hit its emissions targets is to dramatically hike carbon pricing over the next decade, a group of economists recommends.

The report, released Wednesday by the Ecofiscal Commission, takes a detailed look at how carbon pricing compares to other potential government interventions, namely stringent regulations and subsidies. It concludes a massive carbon hike is the most cost-effective policy measure to lower greenhouse-gas emissions 30 per cent below 2005 levels by 2030.

The report is a wake-up call, showing both lawmakers and citizens that it’s time to move beyond “magical thinking,” said Jason Dion, one of the authors.

“I think Canadians want serious climate policy, and what we’ve done with this report is show what that looks like,” Dion told HuffPost Canada on Tuesday. “There’s a limited number of ways to hit our target. It’s not going to be easy but it’s doable.”

Watch: Carbon dioxide levels hit record high.

Canada and five other G20 countries are unlikely to meet their own targets for next year, concluded the United Nations in its annual emission gap report Tuesday. For Canada, that target is 17 per cent below 2005 levels.

Within the century, the Earth is likely to warm to 3.2 C above the planet’s average temperature at the start of the industrial age — that is, unless efforts are tripled, the UN said.

Ecofiscal researchers modelled what they consider three realistic approaches Canada’s federal and provincial governments could take in 2022 to reach Canada’s emission target. That’s the year the federal government plans to assess its carbon pricing, which at that point will be at $50 per tonne. Ecofiscal’s models assume that price will apply nationwide and that current regulations and subsidies will at least remain steady.

Watch: The Liberals will not raise carbon price past 2022. Story continues below.

The commission is funded and supported by groups such as the Ivey Foundation and Metcalf Foundation, as well as Suncor Energy and TD Bank. Its authors work at universities across the country, including Simon Fraser, the University of Calgary, Queen’s and HEC Montreal.

In the commission’s first option, Canada could hike its carbon price to $229 per tonne by 2030 and continue distributing the revenue to consumers in the form of income-tax rebates. Canada’s current carbon price is $20 per tonne.

Those rebates could decrease Canadians’ income-tax rate between one and seven percentage points, depending on the province.

Consumers and industries would also be incentivized by the market to change their behaviour, the researchers suggest.

“Carbon pricing is flexible in that it allows greenhouse-gas emitters to decide for themselves the best way, and it covers the entire economy,” Dion said.

That could mean people plan their driving trips better, take more public transit or buy fuel-efficient vehicles, while fuel distributors could use more renewable fuels and industries could invest in low-carbon technology, he said.

Fuel prices listed on a gas pump at a station in Maple, Ont.
NurPhoto/Getty Images
Fuel prices listed on a gas pump at a station in Maple, Ont.

The commission’s second option would see the government tighten regulations across the entire economy, significantly boost subsidies and increase income and corporate taxes by 1.5 to 2 per cent on average to fund those measures.

Some specific policies could include mandating all new equipment installed in buildings be carbon neutral, requiring industries to halve emissions by 2030 or funding about half the cost of purchasing an electric vehicle.

The final option is for the government to focus on industries — requiring them to reduce emissions by two-thirds while funding nearly two-thirds of low-carbon alternatives, for example. Funding for this option would also come from tax increases. Costs would still be passed to consumers in the form of higher prices, Dion said.

“There’s a temptation out there, wishful thinking, that we can do this in a way that only burdens industry. But it’s a false distinction,” he said.

The last two options were modelled to fund themselves without running a deficit and therefore require increasing taxes. The report concluded that neither was as cost effective as carbon pricing, projecting higher economic growth per capita with Option 1.

The plans using subsidies and regulations require raising taxes to back costly and complicated initiatives that must be far reaching, covering transportation, electricity, industry, buildings, waste and agriculture. The researchers argue that carbon pricing is a simpler, hands-off approach.

“Any meaningful climate policy is hard. Canadians are going to notice,” Dion said. “But we are not talking about living in poverty as a result of climate targets. There are paths forward where our economies can continue to grow, but we have to pick the right ones, the real ones.”

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