Carbon tax must hit $210 per tonne by 2030 to meet Paris targets, report concludes

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In its final report, a privately-funded policy group that calls for market-friendly solutions to climate change concludes that Canada needs a carbon price of $210 per tonne of greenhouse gas emission by 2030 to meet its Paris targets — assuming it relies on the carbon tax alone.

That would mean a 40-cent rise in prices at the pump in ten years’ time. When it introduced its carbon pricing plan, the federal government offered rebates to cover the added cost to households.

The federal carbon tax — currently in place in four provinces and soon to be imposed in Alberta, where an equivalent provincial plan is not in place — is set to increase to 50 dollars a tonne by 2022.

The Liberals haven’t said what might happen after that date, even as they’ve promised to meet and exceed their climate targets.

In its report, the Ecofiscal Commission concluded that, even though it’s more visible and politically controversial, the carbon tax remains the most cost-effective approach to fighting climate change.

Subsidies, regulations less cost-effective: report

The commission modelled various policy options — including carbon pricing, steeper regulations and subsidies — and found that a more stringent carbon tax, coupled with rising rebates, would inflict the least amount of economic damage on Canadians.

The fight over whether the Liberals intend to raise the carbon tax became a flashpoint during the recent election campaign, with Andrew Scheer and his Conservatives branding the measure a “job-killing tax” and promising to scrap it if elected.

“We do have options to get to 2030 but some of the options are, frankly, pretty ugly,” said Chris Ragan, economist and chair of the Ecofiscal Commission.

He cited the example of the “very expensive subsidies” that some have pitched as a response to climate change — corporate or industrial subsidies to fund things like carbon-capture systems, or household subsidies to lower the cost of purchasing electric vehicles or green renovations.

Lower profile, higher cost?

Such subsidies would have a lower political profile than a carbon tax. Ragan said they’d also demand personal or corporate tax increases to pay for them.

“The punchline really is, the more hidden your policy choices, the more expensive they are,” he said.

The report’s data show a scenario combining stricter regulations (requiring companies to cut the intensity of their emissions in half, for example) and substantial subsidies for electric vehicle purchases could end up forcing an income tax hike of roughly 1.5 to 2 per cent for Canadians and corporations, depending on the province.

The report also says a scenario relying on regulations and subsidies for industries alone would cost even more — roughly a 4 to 6 per cent spike in income taxes. The commission concluded that a industry-focused regulation-only model would end up depressing Canada’s GDP — and likely would fail to allow Canada to meet its current Paris target of a 30 per cent reduction in emissions below 2005 levels by 2030.

Ragan acknowledged that the modelling system does not take into account companies shifting toward more sustainable methods without government intervention, but said the report offers governments a realistic “menu of choice.”

“The menu items have a price tag,” he said.

Ragan said the carbon tax hike scenario laid out in the Ecofiscal Commission report would not lead to a “dramatic” rise in gasoline prices.

“That still puts prices below where they were in the summer of 2014, before the price of oil fell, and keeps prices well below where they are in France,” he said, adding that the debate over the carbon tax needs to take into account the rebates meant to offset the household effects.