Not even a $75 carbon tax is enough for Canada to meet its climate change targets, IMF says

Even if Canadian federal and provincial governments increase their carbon taxes to US$75 a tonne they will fall far short of reaching greenhouse gas emission targets, according to a new report by the International Monetary Fund.

Countries that rely more on coal than Canada will see a greater impact from carbon taxes on their emission levels because the monetary bite will be deeper, the IMF says. Some would see a US$75 a ton carbon tax balloon coal prices by 200 per cent by 2030, the report released Thursday showed.

“Whereas a US$25 a ton price would be more than enough for some countries (for example, China, India, and Russia) to meet their Paris Agreement pledges, in other cases (for example, Australia and Canada) even the US$75 a ton carbon tax falls short,” the Washington, D.C.-based lender said. “Emissions are more responsive to pricing in coal-reliant countries such as China, India, and South Africa than in other countries.”

The policies of taxing carbon emissions or imposing limits in a cap-and-trade system are seen by environmentalists as a first step in combatting the emissions due to increase in the planet’s temperature by at least 2 degrees Celsius in the decades ahead with dire consequences for ocean levels and habitats.

In Canada, support for the measure also pits the Liberals against the Conservatives, who instead suggest scrapping the carbon tax and work on green technology as a means of attack.

Ottawa imposed a $20 a tonne fee on people in provinces that don’t have their own carbon tax, such as Ontario, Manitoba, Saskatchewan and New Brunswick. It’s due in Alberta Jan. 1, although court challenges abound. The federal measure increases to $50 a tonne next year. B.C. has its own tax, which is $30 a tonne.

Quebec and Nova Scotia use a cap and trade system, which imposes a limit on the amount of carbon produced by fossil fuels and allows companies to buy and sell permits that allow more pollution.

Canada’s goal under the 2015 Paris climate-change accord is to reduce greenhouse gas emissions to 30 per cent less than they were in 2005 by 2030.

Countries need to rapidly cut greenhouse gas emissions in order to stave off projections that world temperatures will rise by 4 degrees Celsius by 2100 and carbon taxes or cap-and-trade systems are the best way to do it, the IMF’s Fiscal Monitor report said.

“Global warming causes major damage to the global economy and the natural world and engenders risks of catastrophic and irreversible outcomes such as rising sea levels, extreme weather events (already more frequent) leading to loss of life, and the possibility of much higher warming scenarios,” the IMF said. “Policy action is thus urgently needed to curtail emissions. “

As coal use has declined precipitously in Canada, a US$75 a tonne carbon tax would increase electricity prices by less than 30 per cent in Canada compared with as much as 90 per cent in Australia and several large emerging market economies, the IMF said. Gasoline prices would rise by 5-15 per cent in most countries.

A US$75 a tonne carbon tax would increase electricity prices by less than 30 per cent in Canada compared with as much as 90 per cent in Australia


“For retail electricity and gasoline, price changes of this size are well within the bounds of price fluctuations experienced during the past few decades,” the IMF said.

Under a US$75 a tonne carbon tax, electricity retail prices would increase 11 per cent in Canada compared with a global average increase of 32 per cent, and Canadian gasoline prices would jump 17 per cent, the report showed. Also, natural gas prices would balloon 128 per cent in the country, the IMF said.

In the IMF’s analysis of the impact of a US$50 a ton carbon tax in Canada, the U.S., China and India, the report found that Canada suffered the least burden on households and industry.

The report also suggested using 30-40 per cent of carbon tax revenue to compensate lower income households for higher energy prices while using the rest for public investment in India or China, and to cut labour taxes in Canada and the U.S.

This “is also highly progressive and can still generate large gains in economic efficiency,” the IMF said.

According to Ottawa’s assessment of the impact of the $20 a tonne carbon tax and government relief, the average family in Ontario would benefit $56 after paying $244 in higher prices and receiving $300 in the government’s climate action incentive. Similar net benefits would be $195 in Saskatchewan, $104 in Manitoba and $46 in New Brunswick, the government says.

Financial Post

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