The poor implementation of carbon-pricing schemes by Canada's provincial governments undermines their potential environmental benefits, according to a new report from the Fraser Institute, a think tank.
The Institute said that the carbon taxes and cap-and-trade systems introduced in Quebec, Ontario, Alberta, and British Columbia fail to meet the three primary conditions it believes are necessary for such schemes to succeed in reducing greenhouse gas emissions without unduly harming the economy. The conditions are that the system must: replace, and not be in addition to, other emission regulations; be revenue neutral and used to reduce other taxes; and governments cannot subsidize substitutes for carbon-emitting activities.
According to the Institute, "Governments in Canada have shown little intention of implementing carbon taxes under the conditions required to yield efficiency … in short order, carbon pricing has become just another mechanism to fund intrusive and inefficient government manipulation of the economy, while extracting a new revenue stream from our already highly-taxed private sector."
The Institute said that the schemes in place in Alberta, Ontario, and Quebec all increase government revenue, and "have been layered on top of existing regulations." All three governments subsidize alternative energy sources. It added that in British Columbia, where the carbon tax is now revenue neutral following a period of net revenue gain for the Government, a range of emissions regulations remain in place.
Report author Kenneth Green, the Institute's senior director of energy and natural resource studies, commented: "Carbon-pricing in Canada doesn't work the way ivory tower economists envision, and has instead become just another tax."
He added: "True carbon-pricing relies on markets – not governments – to identify the best way to manage emissions. As governments in Canada and beyond increasingly tour the benefits of carbon pricing, it is imperative that we understand the practical realities of such systems instead of just discussing the theoretical possibilities."
With the exception of Saskatchewan, Canada's First Ministers agreed last December on a Pan-Canadian framework on climate change. In the Framework documentation, it is stated that carbon pricing should be one of its central components.
The federal Government has proposed a benchmark for pricing carbon pollution, to be implemented nationwide by 2018. It will permit provinces and territories to implement either a price-based system or a cap-and-trade system.