Carbon tax for Canada

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A carbon tax and tradeable emission permits could be "the most cost-effective government measures" to stabilise carbon dioxide emissions, says The Conference Board of Canada. These measures could lead to significant increases in the prices of fuels and fossil based electricity, thus enhancing the competitiveness of wind power and other renewable energy and efficiency technologies, states the Conference Board in a report issued in March. Carbon taxes would be a step towards full cost accounting, along with the incorporation of social and environmental "externalities" into energy pricing -- measures long advocated by wind power proponents. "Most of Canada's renewable energy industry supports some form of carbon tax," says Jake Brooks, executive director of the Independent Power Producers Society of Ontario. "While nuclear power might appear to gain from a carbon tax, such taxes also imply a movement towards full cost accounting, which would likely offset any advantage nuclear might gain from a carbon tax," he points out.

No Canadian province considers externalities in costing power sources, although British Columbia plans to start doing so soon. If externalities were embodied in costs, as advocated by the Canadian Wind Energy Association (CanWEA), then wind, solar and other renewables would be economically preferred in many cases, say analysts. CanWEA argues that the real cost to society of electricity generated from coal in Alberta is about CDN$0.024/kWh higher than the current stated cost of CDN$0.035/kWh. This is the price of electricity based on fuel, operation and financing costs. It does not include payment for the ill-health and environmental damage which pollution from coal fired plant causes. CanWEA and Californian wind company Kenetech predict that wind power will soon be costing no more than CDN$0.05/kWh to produce. With minimal social and environmental costs of only CDN$0.001/kWh, wind would be competitive with the CDN$0.059/kWh that coal really costs.

The Conference Board study reviews evidence credible to a broad consensus in the scientific community which suggests that the world is being cloaked in a dangerous blanket of manmade gasses -- the so-called greenhouse effect. Canadian environmentalists have advocated a carbon tax and other market based economic instruments for control of these gas emissions since 1989 and earlier, but this is the first time a leading Canadian applied research organisation has advanced them as policy options.

Canada and 33 other participants at the 1990 UN Economic Commission for Europe conference in Norway agreed to stabilise net CO2 and other greenhouse gases not controlled by the Montreal Protocol at 1990 levels by the year 2000. The US made a similar commitment in 1993. However, Natural Resources Canada estimated in 1993 that Canadian CO2 emissions will increase by 11% during this decade if no additional control measures are adopted. If Canada maintains its commitment to stabilisation, the federal government will likely need to implement new policy measures, the report says. "No tax is more cost effective than a carbon tax to curtail CO2 emissions," argues the Conference Board report. A carbon tax would, in contrast to regulations, encourage industrial sectors to invest in existing technologies that are more energy efficient and produce lower CO2 emissions and provide incentives to commercialise new technologies, like wind power, that reduce these emissions. The tax would be calculated in dollars per tonne of carbon and would apply to all purchases of fossil fuels from domestic and foreign sources.

Alberta industry and government (including the premier) sharply criticised the Conference Board report. Alberta is Canada's chief fossil fuel producing province and is dependent on coal for its electricity generation as well as on its exports of oil and natural gas. Some in Alberta, however, accept the need to begin pricing environmental resources and are encouraging the design of innovative economic instruments that will not punish Canada's western provinces.

Carbon, CO2 or related taxes became effective from 1991-1993 in Denmark, Finland, the Netherlands, Norway and Sweden. Switzerland is now considering them.

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