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Putting a Price on Carbon in Canada

One of the keystones of Canada’s climate change initiatives is carbon pricing. According to the World Bank, this economically based method of reducing greenhouse gas emissions is used by dozens of countries and is increasingly supported by the private sector.

Carbon pricing charges those who emit carbon dioxide (CO2) for their emissions; companies that emit more pollution, in theory, pay a tax for the amount they put into the environment. The World Bank states that putting a price on carbon helps shift the burden for economic and environmental damage caused by emissions back to those who are not only responsible for that damage but are also in the position to reduce emissions.

sustainabilityCarbon pricing gives electric utilities and other greenhouse gas producers a direct economic incentive to reduce emissions through clean technology and market innovation. The result of carbon pricing can be a new energy economy that’s fueled by low-carbon demand side management (DSM) initiatives.   

According to the Pan-Canadian Framework, by 2017, broad-based carbon pricing was expected to be in effect in provinces that are home to nearly 85 percent of Canada’s population and economic drivers.

The Pan-Canadian Framework lays out the following carbon-pricing principles:

  • Carbon pricing should be flexible and recognize policies already implemented or in development by provinces and territories.
  • Carbon pricing should be applied to a broad set of emission sources.
  • Carbon pricing policies should be introduced in a timely manner to minimize investment into assets that could become stranded, and maximize emission reductions.
  • Carbon price increases should occur in a predictable and gradual way to limit economic impacts.
  • Reporting on carbon pricing policies should be consistent and transparent.
  • Carbon pricing policies should minimize competitiveness impacts and carbon leakage, particularly for emissions-intensive, trade-exposed sectors.
  • Carbon pricing policies should include revenue recycling to avoid a disproportionate burden on vulnerable groups and indigenous people.

Canadian provinces and territories use two different types of carbon pricing: carbon tax and cap and trade.

Cap and trade, also known as emissions trading systems (ETS), is a quantity-based system designed to spur the private sector to lower greenhouse gas emissions. Ontario is a leader in cap and trade and joined Quebec and California in the carbon market as of January 1, 2018.

A government entity caps the total level of greenhouse gas emissions and other pollutants an industry or an entire economy can produce. The cap is then divided into allowances that the government distributes to emissions-producing companies either for free or through auctions.pollution

Companies that use more than their share of allowances are fined. However, those that lower their emissions faster can sell their extra allowances to larger emitters. This “trade” market supplies funds for companies to implement DSM initiatives and other emission-reduction innovations.

Carbon tax is a financial way to accomplish the same emission-reduction goals as cap and trade. A government sets a price per unit of greenhouse gas emissions created by burning fossil fuels. The more units a company or other entity produces, the higher price it pays. British Columbia and Alberta both impose a carbon tax. 

Learn the whole story about Canadian conservation in our ebook, The Changing Canadian DSM Landscape. 

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Kevin Lauckner
Written by Kevin Lauckner

Vice President of Business Development
Kevin Lauckner has more than just business knowledge. His inherent knack for business development is what allows him to effectively lead our business development team and connect with clients. He understands their challenges, distinguishes what sets them apart from other utilities and produces solutions to those unique challenges. Kevin uses his demand side management tenure in both the United States and Canada, along with his insight, to develop critical strategies that will obtain new utility clients and expand services for current clients. He leverages existing regulatory, utility and industry partner contracts across the United States and into Canada to create new business opportunities. Kevin holds a MBA from the University of Scranton.


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