Carbon Pricing, Fusion Style – Policy Issues to Consider When Carbon Taxes Meet Cap-and-Trade

While there appears to be a growing consensus on the need to price carbon, there is no consensus on the most effective means of doing so – either via taxes or trading schemes.

This edition of Environment and Energy Bulletin was co-authored by Denise Mullen, Director, Environment and Sustainability, Business Council of British Columbia and Selina Lee-Andersen, Counsel, McCarthy Tétrault.

With our vast geography and diversity of weather patterns, Canadians are famous for their obsession with the weather. But the larger issue of long-term global climate change is emerging as the dominant environmental topic on the minds of both citizens and policy makers around the world.

In advance of the annual United Nations Framework Convention on Climate Change Conference in Paris this December (also referred to as COP 21), the dialogue has been dialed up. Many announcements have been made in the last six months from all levels of government – from cities and regions to national governments – about their targets and commitments on climate. Not to be outdone, the Government of British Columbia (BC) recently initiated a "review and refresh" of its climate policies with the release of the Climate Leadership Plan Discussion Paper.

According to the World Bank, by 2015 some 40 national and 20 sub-national jurisdictions had put a price on carbon dioxide (CO₂) (the primary greenhouse gas, or GHG), using carbon taxes or cap-and-trade schemes -- or a combination of both. Collectively, these jurisdictions represent about 25% of global greenhouse gas emissions, although the carbon pricing instruments themselves only cover about 12% of world-wide emissions.

While there appears to be a growing consensus on the need to price carbon, there is no consensus on the most effective means of doing so – either via taxes or trading schemes – and the debate continues. British Columbia, of course, was an early adopter of a carbon tax. In 2008, the province implemented the Carbon Tax Act, which initially set the tax at $10 per tonne of carbon dioxide equivalent (CO₂e) emissions, applied to 100% of emissions from fossil fuel combustion. The tax was increased by $5 per tonne annual increments until it reached $30/t of CO₂e on July 1, 2012. The government then froze the tax for five years. Apart from the carbon tax, BC has implemented some 30 different initiatives related to the management of GHG emissions, including setting legislated emission reduction targets and establishing a technology fund.