BUSINESS
12/19/2017 08:26 EST | Updated 12/19/2017 08:26 EST

Canada's Carbon Pricing Approach Is Overly Complex: OECD Report

The report also says Canada is lagging behind other countries in terms of energy use and carbon emissions.

THE CANADIAN PRESS/Colin Perkel
Environment Minister Catherine McKenna is seen on the shore of Lake Ontario in Toronto on Dec. 1, 2017, where she made a Great Lakes water-quality funding announcement.

OTTAWA — Canada's decentralized approach to putting a price on pollution is overly complex and will be difficult to implement, the Organization for Economic Co-operation and Development says in a new report.

The OECD, an international economic partnership of 35 free market economies, today released the third ever review of Canada's environmental policies and progress, in which it suggests Canada will likely feel pressure to eventually nationalize many parts of the carbon price system.

The report looks at everything from climate change action and adaptation to water pollution, air pollution, garbage dumps and protected lands and waterways since the last review in 2004.

It praises Canada for making some progress in the last decade and a half, such as reducing emissions from electricity generation.

Canada lagging behind


However the report finds Canada lags behind other OECD nations in the amount of garbage that ends up in landfills and is the second-most carbon and energy-intensive economy within the OECD.

For every US$1,000 in GDP created in Canada, this country uses 62 per cent more energy and produces 44 per cent more carbon emissions than the OECD average.

This is largely because of Canada's resource-heavy economy. However the report also notes Canada's use of resources and energy is high even when compared to other resource-heavy economies.

The OECD report calls the Pan-Canadian Framework on Clean Growth and Climate Change a "well thought-out strategy" and the national carbon price included within it is critical to Canada's ability to cut its emissions enough to meet its international obligations.

Practical implementation will, however, be a huge challenge.

However the OECD has concerns with allowing every province to decide how to implement a minimum price on carbon emissions, which is to start at $10 a tonne in 2018 and rise to $50 a tonne by 2022.

"Practical implementation will, however, be a huge challenge," the report says of the system.

Prime Minister Justin Trudeau said in October 2016 every province would have to have a minimum price on carbon by 2018, but each is being allowed to implement their own system as long as it meets federal benchmarks. Provinces that don't will have a federal carbon tax imposed on them and the revenues returned to the province, likely in the form of direct grants to individuals and businesses.

Environment Minister Catherine McKenna said last week provinces will have until the end of 2018 to submit their plans for Ottawa to decide whether it has to impose the national price plan or not.

Six provinces have either a carbon tax or cap-and-trade system in place or planned for 2018.

New Brunswick intends to use its existing gas tax as a de facto carbon price, while Saskatchewan has no intention of introducing a price on carbon and the government says it will sue if Ottawa tries to impose one.

Prince Edward Island and Newfoundland are still working on their plans to be released in 2018.

The OECD says a lot of work is going to be required to figure out how to measure provincial cap-and-trade systems against the federal benchmarks and notes the existing provincial plans have many variants, including price and what products the price is charged on. It expects those variations "may eventually create frictions and pressures" for the different provincial systems to merge at least to some degree.

Canada has lowest environmental tax loads


It also wants Canada to go beyond the 2022 $50 a tonne commitment soon to reduce uncertainty for investors and also to establish an accountability mechanism that can better compare and track provincial systems to each other. Canada should also ensure exemptions to give energy-intensive industries more time to adapt should be temporary.

The OECD notes overall Canada has among the lowest environmental tax loads, ahead of only the United States and Mexico as a share of GDP. That's largely because Canada's fuel taxes are low, heating fuels are rarely taxed at all and excise taxes on inefficient vehicles don't apply to pick-up trucks, which are the best-selling vehicles in the country with the most emissions among passenger vehicles.

Overall the OECD makes 46 recommendations for Canada, ranging from improving air pollution standards to a better alignment of energy development and climate change policies.

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