Why We Need Carbon Pricing

Canada lives in a global economy. There is no way around that. We need allies, we need trade, and to achieve that, we must be willing to compromise—at least to some degree. Recent events shows that U.S. is not a reliable trading partner. They have a history of walking back on agreements, especially if it was made by a prior opposition party. The current administration has a history of disregarding even their own signed trade agreements. So where does that leave Canada? Well we have Asia trading partners across the Pacific and we have the European Union across the Atlantic. Both of which requires some kind of carbon price policy.

The Taxation and Customs Union of the EU has a Carbon Border Adjustment Mechanism (CBAM), which penalizes countries who trade with foreign countries that does not impose any carbon price. It is meant to discourage countries from trading with other countries that might not have much of a concern of the environment. Doing so is what they call “Carbon Leaking”. This is what they have to say:

“Climate change is a global problem that needs global solutions. As the EU raises its own climate ambition, and as long as less stringent climate policies prevail in many non-EU countries, there is a risk of so-called ‘carbon leakage‘. Carbon leakage occurs when companies based in the EU move carbon-intensive production abroad to countries where less stringent climate policies are in place than in the EU, or when EU products get replaced by more carbon-intensive imports.”

https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en

Canada currently has two forms of Carbon pricing. The consumer carbon tax (which as of the time of writing, is rated at $0 per carbon tonne), and an industrial carbon tax using an Output-Based Pricing System. This puts Canada in a more favourable position when navigating trade negotiations with our EU allies. This isn’t to say we must have carbon pricing, but if we don’t, we can expect the EU to apply a tariff, or a carbon tax of some sort on Canadian products imported into the EU.

As for our asian friends, I have not seen any CBAM-like policies implemented but several asian countries have acknowledged carbon leakage concern and has expressed an interest in to implementing some sort of carbon tax adjustment on imports from Countries that lacks carbon pricing. ASEAN noted that carbon leaking could undermine their carbon creditibility.

Mark Carney has pledged to remove our consumer carbon tax and to keep our industrial carbon tax. Hopefully this article helps explain why we aren’t scrapping the entire carbon tax altogether.