Dissonance in Federal Carbon Pricing Regime(s)

By:David V Wright

Legislation Commented On:Legislative Proposals Relating to the Greenhouse Gas Pollution Pricing Ac tLast week, the Trudeau government released draft legislation for a national price on carbon pollution, the Greenhouse Gas Pollution Pricing Act. While this significant step should be lauded as follow-through on important election and international commitments, it is another step toward embedding a disconcerting dissonance that still exists within the federal approach to assigning a monetary value to carbon emissions. Specifically, there remains a glaring and unexplained discrepancy between the soon-to-be-legislated carbon price and the dollar value associated with the social cost of carbon (SCC) used in federal regulatory analyses. In this post, Ibriefly recount the path to the release of last week’s legislative proposal, then explain the social cost of carbon concept and how it is used, and then conclude with a short account of the apparent dissonance between the carbon pricing in the draft legislation and the government’s SCC estimates.

Path to Draft Federal Carbon Pricing Legislation
Soon after the fall 2015 federal election, the Trudeau government negotiated the Pan-Canadian Framework on Clean Growth and Climate Change with provincial and territorial governments (though note that Saskatchewan and Manitoba did not sign on). A central part of that framework was a commitment to pricing carbon pollution across the country by 2018. To achieve this, the federal government committed to implementing a national carbon pricing “backstop” that would apply in any province or territory that does not have a carbon pricing system in place by 2018 that is consistent with the federal scheme. Further details came in October 2016 when the federal government released the Pan-Canadian Approach to Pricing Carbon Pollution, referred to as “the benchmark”, which outlines the criteria that provinces and territories must meet in their respective carbon pricing systems. A key policy design feature is that provinces and territories have flexibility to implement carbon pollution regimes of their choice –typically either a carbon tax, cap-and-trade system, or some kind of hybrid (as many readers know, Alberta currently has the latter).

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