Environment Minister Jonathan Wilkinson told the Commons Environment Committee on Wednesday that the government is planning on introducing new legislation to reduce greenhouse gas emissions which "may" include a new "tax mechanism," Blacklocks Reporter reports.
“I would just say the only way you can actually do this and can meet these kinds of targets is if you actually take a comprehensive view, and that means you need to think about a whole range of issues,” Wilkinson said. “That may be regulatory mechanisms, it may be investments, it may be tax mechanisms, and it’s pricing pollution.”
The potential for a greater tax on carbon contradicts previous claims from the government. “The plan is not to increase the price post-2022. We are doing exactly what we said we’d do," then-Environment Minister Catherine McKenna claimed in 2019.
This promise was also reflected in the Greenhouse Gas Pollution Pricing Act. The law, which formally implemented the carbon pricing scheme used by the Canadian government, limits the carbon tax to $50 per tonne by 2022.
According to the Parliamentary Budget Office, the current tax on carbon, which effectively amounts to a $0.12 tax per litre of gas, is not nearly high enough to reach the Liberal government's carbon targets. Rather, according to analysts, the tax would have to increase nearly 500% to $289 per tonne, or $0.69 per litre. According to a memo from the Department of Environment obtained through a Freedom of Information Act request, “meeting Canadian targets would require a carbon price rising to $100 by 2020 (and) $200 to $300 per tonne by 2050.”
The alternative, greater regulation, may be even more problematic for reaching environmental targets. According to a recent study from the Fraser Institute, greater regulatory burdens on carbon production on top of an existing carbon pricing system could actually be counterproductive when it comes to reaching carbon targets.
The study, titled Carbon Pricing in High-Income OECD Countries, argues that placing a great regulatory burden on companies which already face a carbon tax sends unclear pricing signals on the cost of carbon. This raises costs for both producers and consumers while ultimately failing to reduce carbon emissions to desired levels.
Nevertheless, the government is expected to announce updates to the Clean Fuel Standard (CFS) within the next few months, which the government has been pushing since 2016. It is expected, in order to reach its target, that it will include a "fuel decarbonisation cost of $15.3 billion a year, adding $84 or four per cent to household fuel bills; $62 or 2.8 per cent to the cost of gas; and 13 per cent to fuel costs for industry," according to a 2019 study by the Canadian Energy Research Institute (CERI).
Under the CFS, companies will be forced to reduce their total carbon emissions to a specific target, and those which fail to do so must purchase credits to make up for the shortfall. Assuming the CFS will meet CERI estimates, this would amount to a $200 tax per tonne of carbon, bringing it closely in line with what government analysts have suggested.
The ultimate goal is to force companies to invest more in greener and cleaner fuel by making it prohibitively expensive for them to emit too much carbon. Companies may, however, simply pass off this cost to consumers, raising the price of everyday products for Canadians across the country.
Supporters of the policy, however, point to existing clean fuel standards implemented in California and British Columbia, where carbon emissions per capita have decreased as the use of renewable energy increased. Others have pointed out that California has the second highest gas prices in the United States after the isolated state of Hawaii, while British Columbia has the highest gas prices in Canada. Residents of British Columbia who live close to the US border have often found themselves travelling to Washington state just to fill up their tanks.
“One of the things I am working on every day is the plan we will be bringing forward to ensure we not only meet but do exceed the target,” Wilkinson said, although he admitted that he did not have details of the plan at the moment.
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