Climate change will be an important part of the national conversation this fall. One part of Canada’s strategy to deal with climate change has been to put a price on carbon.
What’s a price on carbon? Glad you asked. It’s a charge on fossil fuels, the main drivers of climate change.
The charge is based on how much carbon pollution (a.k.a. greenhouse gas emissions) the fuel produces when it is burned. For example, a litre of diesel produces more carbon pollution than a litre of gasoline, so the carbon price is higher on a litre of diesel. This creates an incentive to conserve energy, or look for alternative sources.
If we want our climate to remain as stable as possible, economists overwhelmingly recommend we start by putting a price on carbon. The evidence shows that it helps the environment in a way that’s best for the economy.
More to the point: carbon pricing works. It has for a long time.
Here are six places where carbon pricing has worked:
We don’t have to go far for our first example. British Columbia adopted a carbon tax in 2008 and hasn’t looked back. Its economy has grown at one of the fastest rates in Canada (the carbon tax didn’t cause this, but it sure doesn’t seem to have hurt the economy).
Key fact: B.C. used the revenues to cut income taxes and, more recently, to cut health premiums and invest in green technologies. It has some of the lowest income tax rates in Canada.
Northeastern United States
In 2009, 10 states, including New York and Massachusetts, worked together to put a price on carbon. They used the other type of carbon pricing: cap-and-trade. Their system is known as RGGI (Regional Greenhouse Gas Initiative), or “Reggie.”
How it worked: Electricity producers started burning way less coal and started using more natural gas and renewable energy, which reduced greenhouse gas emissions.
Key fact: “Reggie” improved public health. Less coal meant less soot, and these states avoided more than US$5 billion worth of asthma attacks, hospital visits, chronic illnesses and premature deaths.
Sweden has had a carbon tax since 1991. It started at €25 per tonne of greenhouse gases and is now €120 per tonne, the highest carbon tax in the world. Since implementing carbon pricing, Sweden’s economy has grown well above the European average.
How it worked: Businesses and homes started using less coal, gas and oil for heating, and started using biofuels instead. Sweden has reduced its greenhouse gas emissions by 25 per cent since 1995. Its carbon tax was a key contributor.
Key fact: Sweden wants to be carbon neutral by 2045 and will use pricing to help get there.
The United Kingdom has had a bipartisan consensus on climate change for a long time. They introduced a carbon price in 2001 and gradually ramped it up over time.
How it worked: The carbon price completely transformed how the U.K. generates and uses electricity. Its emissions haven’t been this low since 1890, and studies point to carbon pricing as a key contributor.
Key fact: The U.K. got serious about carbon pricing in 2013. In 2012, the U.K. got 36 per cent of its electricity from coal. In 2018, it got six per cent of its electricity from coal.
Tokyo was the first city to put a price on pollution back in 2010. About 1,300 of its largest buildings pay a price on carbon.
Fighting climate change isn’t controversial in the EU. It has had a price on carbon for 15 years, fostered international co-operation and emphasized the need for collective action. The system applies to most of Europe’s large industrial facilities (manufacturing, power, etc.).
How it worked: It took a while to get working, but the EU’s system is finally humming along. It led to a direct increase in the number of low-carbon patents and innovations, and it’s slowly changing how the EU produces electricity.
Key fact: The EU’s carbon market is the largest in the world, but it will fall to No. 2 when China launches its carbon market in 2020.
Bonus: The United States (again)
Pricing has worked on pollutants other than carbon. Just ask acid rain. Oh wait, you can’t. We got rid of it by putting a price on it. In 1990, two conservative politicians, former prime minister Brian Mulroney and former U.S. president George H.W. Bush, agreed to address sulfur dioxide pollution, the main cause of acid rain. The U.S. did this by putting a price on sulfur dioxide.
How it worked: Power plants, the main source of sulfur dioxide emissions, responded quickly. They rerouted rail cars so they could burn coal with less sulfur content, and they invested in pollution scrubbers that pulled out sulfur before it left their smokestacks.
Key fact: By 2004, sulfur dioxide emissions had fallen by 36 per cent, even as coal-fired power grew by 25 per cent.
The bottom line
Pollution pricing works. It’s working around the world. It’s working here in Canada.
A climate change plan without a price on carbon is like a house without a foundation. Sure, it can do the job, but you’ll take on a lot of unnecessary costs.
As long as we take the time to do it properly, carbon pricing can be a key part of the solution to climate change. And at a time when cost-of-living concerns are high, how we get there matters. Let’s lay the right foundation.
Brendan Frank is a research associate with Canada’s Ecofiscal Commission.