What Does the Federal Carbon Pollution Pricing Backstop Mean to Sault Ste. Marie?
With the newly implemented federal carbon pricing backstop in place for provinces that do not have an adequate carbon pricing plan to reduce emissions, there needs to be a discussion of the resulting implications. This article provides helpful insights on this discussion.
First, let’s consider the current and trending state of climate change in Canada, where findings from the Canada’s Changing Climate Report warns that “both past and future warming in Canada is, on average, about double the magnitude of global warming”. As a result, we are faced with a future of changes in weather and climate patterns, migration of vector borne diseases, and increased frequency and intensity of precipitation, flooding, extreme heat, and wildfires which is going to have devastating effects on human health, nature, and the economy. In order to limit global temperature rise to 1.5°C as Canada has agreed to via the Paris Agreement and limit the impacts of climate change, the Intergovernmental Panel on Climate Change recommends a 45% reduction of CO2 emissions by 2030 from 2010 and net zero by 2050. With 2030 being only 11 years away, these reports along with countless scientific journal articles and publications demonstrate that urgent action is needed to address the problem of climate change. In this regard, the carbon pricing backstop is a step in the right direction because it responds to shortcomings in provinces that are not taking urgent action of their own to reduce greenhouse gas emissions.
The federal carbon pollution pricing backstop itself is comprised of a fuel charge that reflects a cost of $20 per tonne of CO2 equivalent in 2019, with steadily-rising rates to effectively reduce greenhouse gas emissions. This is done with the intention that greenhouse gas emissions will lower. The carbon tax is revenue neutral, meaning the money that contributes to the tax is returned to individuals and families when they file their taxes. Industries that reported more than 50 kilotonnes of CO2 equivalent in 2014 or a subsequent year to the Greenhouse Gas Reporting Program fall under an output-based pricing system which prescribes greenhouse gas emission limits that if exceeded demand compensation for polluting but also exempts them from imposed fuel charges.
The federal carbon pricing backstop was designed to redistribute all the money back to the province in which it was collected, and most families will receive more money in the form of a rebate than they will in direct and indirect costs from a price on pollution. As the imposed price on carbon rises, so does the rebate. This is structured to send economic and market signals to individual consumers, while empowering households and individuals to make their own choices of how to apply the rebate.
The theoretical underpinnings of this approach go back to classical economics: the invisible hand works – indeed only can work - when all market actors receive and act according to accurate information about their choices. All this pricing mechanism does is send a clearer market signal to all actors by pricing pollution that is destabalising the climate that supports life on the planet. The more we pollute, the more we ought to pay. It's one fair way to hold polluters accountable, and it's a sound method to help generate the changes that support actions to stabalise our climate. In effect, carbon pricing simply charges for what we don't want and redistributes the money so people can chose what they do want. Carbon pricing is simply one part of a comprehensive plan that economists believe is a fair and effective way to make polluters accountable.
The key feature of this federal pricing mechanism is that it only comes into play when provinces choose not to have their own system. Most Canadians already have carbon pricing in their province. Moreover, carbon pricing is normal: from China to Japan and Germany to California, Canada isn't unusual. We are only one of almost 50 jurisdictions around the world with a carbon pricing mechanism. Carbon pricing is also very fair: it can be used to cut pollution while supporting lower- and middle- income Canadians: both Alberta and B.C. mail rebate cheques to households using the revenues from carbon pricing.
Make no mistake: doing nothing will have even bigger – far bigger - consequences and price tags. Carbon pollution is destabilising our climate, and we can see this in more frequent and severe wildfires and floods. Taxpayers in Canada have paid more for disaster recovery in the last 10 years as a consequence, than in the four decades prior to that. This is only poised to get worse, far worse.
While arguments against carbon pricing may sound convincing at first, almost all economists believe that putting a price on carbon pollution is the most effective way to shrink the greenhouse gas emissions changing the climate without harming the economy.
In the midst of this, there are certain aspects that are clear. One, a price on pollution such as this carbon pricing backstop, is only a start. By itself, it will prove insufficient. In fact, this carbon pricing mechanism clearly has grave limits in that it doesn't really challenge the status quo or business as usual trajectory; indeed, it strengthens that trajectory by subsidising large emitters to maintain uncompetitive and market distorting trade. We will clearly need additional mechanisms to meet our urgent need to rapidly and significantly reduce greenhouse gas emissions. Which raises a second important point: this is only the start. We can expect much more in the way of policy and regulatory mechanisms in the coming months and years. This will have direct and lasting consequences for everyone. Which raises a third very important point: we all should be prepared for this. That means acting on the available information, taking steps to reduce our own carbon emissions, and making plans to adjust our behaviours and lifestyles accordingly. Which raises a fourth point: we can all do a small part, but much of that action is guided by architectures beyond the choice of individuals. In short, most of us won't walk or bicycle if walking paths and cycling networks don't exist, are inconvenient (or at least less convenient than the alternative), or have other barriers other choices don't have. Few of us too are prepared to sink thousands of dollars into home upgrades, especially if the businesses, expertise, and financial incentives don't exist locally to do so. Therefore, the city needs to step up today to enable these actions, choices, lifestyle and behaviour changes. There have been a few steps in this direction, but as we illustrated in our budget submission, there is much room for improvement. The city needs to consider how every action they take, decision they make supports citizens to reduce their GHG emissions. That must include everything from smaller and fewer roads, more cycling paths, better transit, and encouraging to supporting the economic development of community expertise and private sector initiatives to support and enable the changes we all must make. Finally, the city needs to be prepared for the changes to come: the city must organise now for an economy that will look very different in less than a decade, one where carbon pricing, new technologies, regulations and economic and market changes will guide our choices and options. Starting with transformed infrastructure to divesting from all fossil fuel investments, businesses, economic development or other actions that could place a very high risk on the well-being, management, fiscal liquidity and survival of this community, Sault Ste. Marie needs to plan for the disruptions in business as usual - such as carbon pricing - that will accelerate in the next few years.