If you show up
at the landfill with a truck full of garbage, you have to pay to dump it. But
if you pump pollution into the atmosphere, most Canadian jurisdictions provide
a free dumping ground.
Outside of B.C.
there aren't any simple and broadly applied financial signals in Canada to
encourage reductions in greenhouse gas emissions. Essentially, the atmosphere
is treated as a free and bottomless landfill. It's no surprise then that
emissions have been increasing in Canada for as long as we've been measuring
them.
Most climate
change experts agree putting a price on greenhouse gas emissions is vital.
Under an effective carbon pricing system every tonne of pollution comes at a
cost, rather than being free. The dirtier the energy source, the more expensive
it becomes.
The idea is not
a radical one. If we want families and businesses to adopt green technologies,
it's only logical to make the dirtier options more expensive and the cleaner
options more affordable. Pricing pollution empowers the market to identify and
develop the most cost-effective solutions. Instead of building coal plants,
we'll build wind turbines; instead of driving gas-powered cars, we'll choose electric
vehicles powered by renewable energy.
There are two
ways to put a price on carbon: a carbon tax or a cap and trade system.
To implement a carbon tax, the government sets a price per
tonne of emissions and adds that cost to the price of different energy sources.
A
$75 per tonne carbon tax would more than double the cost of coal-fired
electricity, for instance, but it wouldn't change the price of solar power. B.C. implemented a carbon tax in 2007 and
Sweden and Norway have charged similar taxes since the early '90s. Ireland and
France are on the verge of implementing carbon taxes.
Cap and trade
systems are more complicated, but can also be effective if the urge to
introduce loopholes is resisted. The European Union's cap and trade system was
launched in 2005 and is the world's largest.
In an effective
cap and trade system, governments set a limit (the cap) on total emissions and
sell allowances equivalent to that cap. Emitters buy allowances for every tonne
they emit. The lower the cap, the fewer the allowances and the higher the price
- thus the stronger the incentive to reduce emissions.
There are three
factors that determine if carbon pricing will be effective.
The first is
how high the price of carbon is set. The gap between the costs of clean and
dirty energy is still wide in many cases, so if the price of dirty energy isn't
increased enough by a carbon price, clean solutions risk being left behind.
The second is
how broadly the price is applied. The carbon price will only affect the
emission sources that it is applied to, so the narrower the application the
more emitters that can continue to pollute for free.
The third
factor is how revenue from carbon pricing is used. There's no magic formula,
but governments need to find a balance between investing in emission reduction
projects, protecting low-income families and lowering other taxes.
With one of the
most comprehensive carbon taxes in the world, B.C. provides a solid example.
Applying to 73 per cent of emissions, the tax will ramp up to $30 per tonne by
2012. Revenues are used to reduce other taxes and provide some protection to
low-income families.
That's not to
say there aren't opportunities to improve B.C.'s car
bon tax. The biggest
challenge will be getting from $30 per tonne to $200 per tonne in the next ten
years. It's also essential to get the rest of Canada on a comparable track.
In doing so,
Canadians will begin to put their money where their mouths are in recognizing
that pollution and climate change cost us all. By reflecting the true cost of
dirty energy, carbon pricing is a market-based solution that directs investment - and attention - toward a cleaner future.
Matt Horne is the director of B.C. Energy Solutions at the
Pembina Institute, a national sustainable energy think tank.
