Prime Minister Justin Trudeau announced a national “floor price” on carbon Monday that would require all provinces and territories to have some form of carbon pricing by 2018.
Here are five things to know about putting a price on carbon:
Why a carbon price?
Putting a price on carbon is meant to give people and companies an incentive to look for lower emission options to save money. The price can come in the form of a specific tax or levy, like the minimum $10 per tonne the federal government has set for 2018, or a more indirect cap-and-trade system.
Which provinces have a carbon tax in place?
British Columbia introduced a carbon tax in 2008 and it now stands at $30 a tonne, adding an extra 6.67 cents to each litre of gasoline and 7.67 cents to each litre of diesel. In August, the province said it would stick to that price until other jurisdictions catch up.
Alberta announced last November it will have a $20-per-tonne carbon levy in place next year, rising to $30 a tonne in 2018. For both provinces, the tax applies to gasoline, diesel, natural gas and propane.
What are the alternatives?
Quebec joined California in a cap-and-trade carbon market in 2014, and Ontario is set to start trading in the same market next year. Cap-and-trade systems set economy-wide limits on emissions and then establish a carbon market, within which industries are allotted permits for emissions that they can buy and sell, with the costs passed on to consumers.
The federal government says provinces that go this route have to set emissions caps that correspond to how much a specific carbon price is expected to reduce emissions.
Where does the money go?
Provincial governments that have implemented carbon taxes get to keep that revenue, while the federal government said it will also return funds from any federally-imposed carbon tax to the jurisdiction of origin.
British Columbia’s system is designed to be revenue neutral, meaning the government will take in no extra money from the tax and instead return it through tax cuts and credits. Alberta’s system returns some of the costs to lower-income consumers in the form of a rebate, and small business taxes have been reduced from three per cent to two per cent to help offset costs. But about two-thirds will go towards spending more generally on diversifying the economy, including on renewable energy, transit infrastructure and energy efficiency measures.
Who is exempt?
Alberta and B.C. have several exemptions to the tax, such as those that apply to the agricultural sector and some air travel. Large emitters in Alberta including oilsands operations fall under a different system that sets specific emission reduction goals.
The federal government said any carbon pricing should minimize competitiveness impacts and avoid simply driving emitting industries abroad, particularly for trade-exposed sectors.