Weakening Canada's Industrial Carbon Price Raises Emissions With No Clear Economic Benefit

News today of a reported agreement between the federal and Alberta governments that the carbon price paid by industry may not reach CAD 130/tonne until 2040 would represent a significant and unnecessary watering down of the current industrial carbon price.  

Soon-to-be-published modelling completed by IISD and Navius shows that the impact of carbon pricing on GDP would be minimal—less than 0.5% in 2040 for a high-price scenario that reaches CAD 380 in the same year, relative to our lowest-price scenario of CAD 130. Modelling from the Canadian Climate Institute has similarly shown the limited impact of carbon pricing on GDP out to 2030. Meanwhile, a stronger price is an effective incentive to reduce carbon pollution, mitigating the massive costs that rising temperatures will continue to have on Canada’s economy. This makes it clear that waiting until 2040 to get to an effective price that can be easily reached by 2030 simply cannot be justified on economic grounds.

A weakened carbon price also risks billions of dollars’ worth of investments in the clean economy. Our modelling results show that a price rising to CAD 380/tonne in 2040 would generate almost CAD 8 billion more in investment that year relative to a flat price of CAD 130/tonne from 2030 to 2040.  

Compromising the carbon price now would likely be leaving billions of dollars in investments on the table—at a time when the world is increasingly demanding low-carbon products. The European Union Carbon Border Adjustment Mechanism, for example, means that exporters will face a direct cost at the border. Every tonne of greenhouse gas that exporters do not emit is a tonne they don't have to pay for—and a Canadian carbon price is the best way to get them decarbonized.

At a time when Canada’s leadership is focused on securing a prosperous, sustainable future for its citizens, this comes as a roadblock to progress—a loss for both the economy and the climate.