The State of Carbon Pricing in Canada

The first independent expert review of carbon pricing across Canada indicates jurisdictions are making progress, but changes will be necessary to ensure federal, provincial and territorial systems are effective in reducing greenhouse gas emissions in the long term.

The Canadian Climate Institute was commissioned by Environment and Climate Change Canada to undertake this assessment to fulfill a commitment under the Pan-Canadian Framework on Clean Growth and Climate Change.

In addition to the detailed technical assessment report, the Institute independently produced and published a complementary summary report, which identifies five challenges with carbon pricing in Canada and offers recommendations for ongoing improvement. 

Five ways to improve carbon pricing in Canada 

To support effectiveness and address competitiveness and fairness issues, federal, provincial, and territorial governments should work towards developing a common standard of emissions coverage for carbon pricing.

Any rebates that are directly tied to fuel purchases or the level of emissions should be replaced with other approaches to revenue recycling such as direct rebates, income tax reductions, or abatement technology subsidies.

While large emitter programs have successfully addressed competitiveness concerns by reducing the average cost of the policy, implementation can be improved by aligning benchmarks and limits on emissions sources across jurisdictions, scaling back the level of free emissions granted, and enabling credit and emissions trading across jurisdictions. 

Some Indigenous communities in some jurisdictions are exempt from carbon costs, while others face the full carbon cost. Further engagement is needed to ensure potential policy changes explicitly consider the treatment of non-status and self-governing First Nations, Inuit, and Métis communities, as well as Indigenous Peoples who reside in non-Indigenous communities.

Enabling continuous improvement requires more transparent collection and sharing of carbon pricing data and information from all jurisdictions, developing common methods to compare average costs on large emitters, collecting empirical data on system performance, and holding routine independent reviews of carbon pricing systems aligned with jurisdictional reporting and policy review cycles. 

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