Canada is an unlikely model for climate-change policy. As things stand, it’s a long way from keeping the promise it made as part of the Paris agreement to sharply cut carbon emissions. But its government is now proposing to make this right — and with an approach that deserves to be widely copied.
The Cost of Carbon
This week Prime Minister Justin Trudeau announced a national carbon tax, starting at C$10 ($8) a ton in 2018 and rising to C$50 by 2022. The plan isn’t perfect, but the basic idea is right.
In moving to strengthen national climate-change policy, Trudeau had to contend with the fact that some provinces have already set carbon prices of their own. The government needed a scheme that would encompass those systems while pushing other provinces to catch up. So Trudeau offered a choice: Stick with your own approach, so long as it cuts emissions as deeply as the new national tax, or let Ottawa collect the levy and send you the proceeds.
This accomplishes several things. It tells the world that Canada wants to make good on its commitments. It announces that even an economy dependent on energy extraction can tax carbon. Best of all, it shows that a carbon tax needn’t be a grab for additional fiscal resources: The policy can be revenue-neutral.
Where the plan falls short is the rate of tax. It’s unclear how the government arrived at C$50 by 2022, but that’s probably too low to curb emissions as promised. By one estimate, Canada would need a carbon tax of $200 a ton by 2030 to achieve its Paris target.
Bringing the tax up to the right level shouldn’t be rushed, because the economy will need time to adjust — but promising to pause at C$50 for review introduces uncertainty. A carbon tax works best if it provides a long-term price signal to guide investments spanning years or decades. Not knowing whether the price will increase after 2022 undermines that benefit.
Still, the first and most difficult step for any government that’s serious about climate change is to put a price on carbon. Canada is about to do that, and other countries should do the same. — Bloomberg