Canadians will have the next decade to ponder the federal carbon tax and its ability to balance the economy with the environment.
Following back-to-back-to-back annual carbon tax hikes, the Parliamentary Budget Officer (PBO) estimated in a report released Wednesday that an additional $120 per tonne of carbon tax will be added by 2030. Passed in 2018, the Greenhouse Gas Pollution Pricing Act capped the tax at $50 per tonne.
According to the report, the economic cost of the tax increase on real GDP is a 0.8 percent reduction in 2030. Additional costs include cuts to labour force growth by 1 percent and significant contractions in transportation and oil and gas by up to 16 percent and 11 percent.
To meet 2030 climate targets under the Paris Agreement, the economic costs of addressing climate change are great.
PBO Officer Yves Giroux said there was little hope that new technologies would lower greenhouse gas emissions without higher taxes. The report’s analysts state "the scale and speed of the changes will make it challenging to achieve."
To exceed the 2030 Paris targets, PBO advocates for the tightening of the Output-Based Pricing System (OBPS) standards, which will reduce Canada’s emissions by 96 Mt in 2030. "Increasing the federal fuel charge to $170 per tonne and tightening OBPS will help Canada achieve over half of the 168 Mt reduction projected in Budget 2021," said Giroux.
He also added that significant reductions from less visible non-price policies, already announced, will also be needed to reach that objective.
To achieve the 168 Mt reduction by 2030 projected in Budget 2021 and exceed the Paris target, the PBO estimates that announced non-price policies will have an effective cost of $91 per tonne, in addition to the $170 carbon tax. Giroux said these regulations and incentives to develop and adopt lower emissions technologies are based on the assumption that the measures chosen have the lowest cost.
At the lowest cost, the non-price policies will see real GDP decline further to 1.4 percent.
The $261 increase is equivalent to 52 cents extra per cubic metre of natural gas and an additional 62 cents for gasoline.
On April 22, 2021, the Government announced its intention to reduce Canada’s GHG emissions below the 468 Mt projected in Budget 2021 to 40 to 45 per cent below 2005 levels.
The report also notes that the Government’s most recent announcement in April to further reduce emissions by another 30 to 66 Mt by 2030 will require further action. The Government has not yet announced policy measures to achieve this additional reduction in emissions.