Pan-Canadian Framework on Clean Growth and Climate Change first annual report: pricing carbon pollution

Carbon pollution pricing is central to the Pan-Canadian Framework given that it is broadly recognized as one of the most effective, transparent, and efficient policy approaches to reduce GHG emissions. Some provinces have already established carbon pollution pricing systems, while other provinces and territories are moving forward to design or put in place their own systems. The carbon pollution pricing benchmark established by the federal government gives provinces and territories the flexibility to implement either an explicit price-based system (i.e., a carbon tax or a hybrid system with a carbon levy and performance-based system) or a cap-and-trade system.

Significant progress has been made to implement carbon pricing in Canada. Many of these actions build on existing carbon pricing programs already in place in Canadian jurisdictions, which cover about 85% of Canada's economy and population. Economy-wide carbon pricing is in place in several provinces:

• British Columbia has North America’s most comprehensive carbon tax currently at $30/tonne and increasing by $5 per year starting in 2018, to a maximum of $50/tonne, with a targeted performance-based system for industrial emitters;
• Québec had a carbon levy (2007-2015), and has also had a cap-and-trade system since 2013, which guarantees GHG reductions;
• Ontario has a cap-and-trade system (2017); and,
• Alberta extended the reach of its carbon pricing system in 2017, increasing coverage across the economy by introducing a carbon levy at a rate of $20/tonne, increasing to $30/tonne in 2018, to complement its intensity-based pricing system. A new output-based pricing system will be introduced in 2018.

On September 22, 2017, Ontario, Québec, and California signed an agreement linking the carbon markets of the three jurisdictions. This agreement integrates and harmonizes emissions cap programs, allowing entities to meet their emissions compliance obligations in a more flexible and cost-effective manner while maintaining the environmental integrity of each jurisdiction’s progress.

This year, progress was made by other provinces and territories to inform the design and implementation of carbon pricing, including stakeholder engagement to support program development:^{Footnote 1}

• Nova Scotia announced an Agreement-in-Principle with the federal government on clean growth and climate change, and conducted stakeholder consultation on design options for developing a cap-and-trade program. Nova Scotia plans to develop cap-and-trade program regulations in 2018.
• Manitoba announced a Made-in-Manitoba Climate and Green Plan that includes carbon pricing.
• New Brunswick committed to introducing a carbon pricing mechanism during the current session of the legislature.
• Prince Edward Island is preparing to launch a carbon pricing mechanism in 2018.
• Newfoundland and Labrador has passed legislation for a performance-based system for large onshore industrial emitters and has put in place reporting requirements.
• Yukon is studying the impacts of carbon pricing on its communities, residents, businesses, and industry.
• The Northwest Territories (NWT) is examining an approach to implementing carbon pricing in the NWT in a manner that reflects the unique circumstances in the NWT.
• Nunavut is studying the impacts of carbon pricing on Nunavummiut.

The federal government released a technical discussion paper outlining the proposed design of the federal carbon pricing backstop system—composed of a levy and performance-based pricing system—for public comment. The federal government is working with each of the Territories to provide a preliminary assessment of the potential impacts of carbon pricing in the Territories. This work will be used by the territorial and federal governments to help inform solutions that address the unique circumstances of the Territories, including high costs of living and energy, and challenges with food security. The federal government will also engage Indigenous Peoples to find solutions that address their unique circumstances, including high costs of living and of energy, challenges with food security, and emerging economies. Federal, provincial, and territorial governments also initiated a review of approaches and best practices to address the competitiveness of emissions-intensive trade-exposed sectors.