Canada's Carbon Price Floor
28 Pages Posted: 5 Apr 2018
Date Written: March 2018
The pan-Canadian approach to carbon pricing, announced in October 2016, ensures that carbon pricing applies throughout Canada in 2018, with increasing stringency over time to reduce emissions. Canadian provinces and territories have the flexibility to either implement an explicit price-based system-with a minimum price of CAN $10 per tonne of carbon dioxide equivalent in 2018, increasing to CAN $50 per tonne by 2022-or an equivalently scaled emissions trading system. This paper discusses the rationale for, and design of, the price floor requirement; its (provincial-level) environmental, fiscal, and economic welfare impacts; monitoring issues; and (national-level) incidence. The general conclusion is that the welfare costs and implementation issues are manageable, and pricing provides significant new revenues. A challenge is that the floor price by itself appears well short of what will be needed by 2030 for Canada's Paris Agreement pledge.
Keywords: Western Hemisphere, Canada, carbon price, price floor, welfare impacts, incidence, effective carbon price, competitiveness impacts, Environmental Economics: Government Policy
JEL Classification: Q54, Q58, H23
Suggested Citation: Suggested Citation