carbon tax

Carbon Tax and How it Works in Canada

There’s no doubt. We are running out of time to prevent an environmental apocalypse. The report by the UN climate change panel predicts a worsening world crisis by 2040. This damage to our ecosystem will cause food shortages, natural disasters, and the extinction of many species.

That is why two-thirds of voters threw their weight behind the party in favour of carbon tax. Although the matter continues to generate back talk, the federal carbon tax rolled out in Manitoba, Saskatchewan, New Brunswick, and Ontario in 2019. These provinces were not able to provide their plans before the federal deadline.

In this piece, we would review how carbon tax works in Canada and whether or not it’s practical.

What is a Carbon Tax?

A carbon tax is a levy created by the Canadian government to charge the emission of greenhouse emissions. Producers, distributors must pay a specific portion of their proceeds for each tonne of carbon dioxide they let out into the atmosphere.

To encourage emitters to reduce their emissions, the government marginally increases the cost of a carbon tax over time to allow household consumers and industries to get used to consuming fewer fossil fuels.

Difference between Cap-in-Trade and Carbon Tax

Cap-in-trade is an indirect form of carbon pricing. The government puts a cap on the number of emissions by companies that receive emissions permits. Where a company uses fewer emissions than allowed by its permit, it can sell the excess to companies that exceed their limits.

Efficacy of Carbon Pricing

Many scientists and economists believe that the best way to combat emissions is to put a tariff on fossil fuel consumption. When there’s a price on how much emissions we are allowed to release into the environment, the incentive to innovate cleaner sources of energy becomes higher.

A carbon tax may also affect consumer behaviour by forcing people to drive more energy-efficient vehicles. The numbers do not lie; the emissions in British Columbia fell by 4.7% in eight years. Carbon tax countries like Sweden also saw emissions decrease by a whopping 26% since it implemented its carbon tax policy 28yrs ago. Compare that with Saskatchewan, where there was a marked increase in greenhouse emissions from 1999 right up to 2015.

However, there might be external factors at play in Ontario and New Brunswick after the government shut down coal-generated electricity from plants and mills.

The Government’s Stand on Carbon Tax

Canada commits to meet emission goals under the Paris Agreement. To achieve this aim, the federal government of Canada, through its Pan-Canadian Framework on Clean Growth and Climate Change, set a benchmark on carbon prices to start at C$10 per tonne annually, slightly increasing until it gets to $50 per tonne come 2022.

Any province without a carbon tax plan must adopt the federal government’s carbon tax plan or backstop, and that’s what happened to the four provinces. However, critics believe that Canada’s carbon tax is too low to make a significance, let alone avert environmental disaster, as observed by the UN.

Carbon Tax & The Consumer

Consumers will feel the effects of the carbon tax on businesses and corporations due to the inevitable increase in the price of goods and services from industries that emit a high amount of greenhouse gases.

Provinces with Carbon Tax

BC introduced the Carbon Tax as far back as 2008, and despite the international approval, the policy did not sit well with a lot of British Columbians. Emissions were set at C$35 per tonne with a marginal increase of C$5 each year until 2021. However, the government decided to offset the cost by putting together a climate action tax credit alongside GST/HST returns.

The BC provincial government also has the CleanBC plan that allows industries to stay competitive as they try to innovate cleaner sources of energy.

Alberta has a levy imposed on all kinds of fuels since 2017. The province is putting a price on greenhouse emissions at C$30 per tonne each year, a policy backed by the federal government.

On the other hand, Quebec has rolled out a mandatory cap-and-trade plan since 2013, with a resultant decrease in the level of greenhouse emissions. Ontario had its cap-and-trade system abolished by Doug Ford less than a year after it was put in place by Kathleen Wynne’s administration.

Newfoundland and Labrador, Nova Scotia, and the Northwest Territories each have their carbon tax introduced before the federal government deadline.

Cost of Carbon Tax

The federal levy sets the price of carbon at C$20 per tonne that translates into 4.4cents for each litre of gasoline. Fortunately, the rebate of the average Canadian family should put them in good shape to afford it.

Provinces with Different Carbon Tax Rates

The carbon tax rate varies from one province to the other because they respectively rely on contrasting fossil fuel measures, meaning people will pay more or less carbon tax depending on the province they reside. The payments are based on the number of people living per household and paid to a single tax-filer.

Carbon Tax vs Cap-in-Trade Pros & Cons

Carbon Tax

Pros

It’s easier to administer while more straightforward to understand. The price of emissions is the same for everyone.

Cons

There’s no limit to the amount of carbon you can burn. The giver next fixes a price and hopes that price acts as a deterrent for consumers to emit fewer emissions.

Cap-and-Trade

Pros

The government can target precisely the amount of emissions reductions it expects to see, adjusting carbon permits to meet its expectations.

Cons

The industries can exploit the system to their advantage. It’s also less straightforward than a carbon tax; for instance, the industries can overreport the number of emissions, thereby forcing the government to set higher caps, which will see fewer improvements in the reduction of carbon.

Industries with better lobbyists can persuade the government to receive more permits to the detriment of other sectors.

Conclusion

Carbon tax is necessary for the survival of the earth. Scientists across the world agree that climate change is not only real but a deadly threat to our survival as a species. It is also an excellent measure to reduce emissions and save the earth.

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