ARTICLE
4 December 2015

Policy Considerations When Carbon Taxes Meet Cap-and-Trade

MT
McCarthy Tétrault LLP

Contributor

McCarthy Tétrault LLP provides a broad range of legal services, advising on large and complex assignments for Canadian and international interests. The firm has substantial presence in Canada’s major commercial centres and in New York City, US and London, UK.
As we recently reported, British Columbia's (BC) Climate Leadership Team prepared a report setting out 32 recommendations for BC's climate policy path forward.
Canada Environment

As we recently reported, British Columbia's (BC) Climate Leadership Team prepared a report setting out 32 recommendations for BC's climate policy path forward. Recommendation 29 states that: If the majority of Canadian provinces opt for carbon pricing via emissions trading to cover greenhouse gases from large final emitters, a review should be undertaken of mechanisms to integrate a carbon tax with a cap and trade framework for the BC context.

According to the World Bank, approximately 40 national and 20 sub-national jurisdictions have put a price on carbon dioxide (CO2) using carbon taxes or cap-and-trade schemes – or a combination of both. The World Bank estimates that as of April 1, 2015, the value of global emissions trading systems was approximately US $34 billion, while carbon taxes were valued at about US $14 billion.

While there appears to be a growing consensus on the need to price carbon, there is no consensus on the most effective means of doing so – either via taxes or trading schemes – and the debate continues. BC was an early adopter of a carbon tax which currently stands at $30 per tonne of CO2 equivalent. However with Ontario's announcement that it will implement a cap-and-trade system, the launch of an emissions trading system in South Korea and the planned cap-and-trade system in China, it appears that emissions trading is emerging as the carbon pricing tool of choice. As a result, BC may eventually consider a hybrid carbon pricing system that segments the market between industrial activities and commercial transportation (63.4% of BC's emissions) and the rest of the economy (31.7% of emissions). In a hybrid system world, the former would likely be included in some form of cap-and-trade scheme; and the latter would continue to pay the carbon tax. The policy challenges of such a hybrid system are discussed in a recent paper co-authored with the Business Council of British Columbia entitled Carbon Pricing, Fusion Style – Policy Issues to Consider When Carbon Taxes Meet Cap-and-Trade.

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