This week, The Press taught us that major polluters will pay much less for the right to pollute than motorists: Quebec estimates that they will only have to pay $9 per tonne of carbon on average between 2024 and 20301. This problem was raised wonderfully by the brief made public on Wednesday by the environmental groups Greenpeace, Équiterre, Nature Québec and the David Suzuki Foundation. They also propose a “floor price” of $50 per ton.
Posted at 6:00 p.m.
Ironically, Quebec has just changed its emission rights; before the change the average price was… $4. The contrast is all the more stark when we know that the federal carbon tax will be $170 per ton in 2030.
This two-tier system will only accentuate tensions with the federal government, which has a mechanism that is more consistent with our greenhouse gas (GHG) emission reduction targets.
carbon leak
Quebec defends this low price because of “carbon leakage”. Indeed, by imposing an additional burden on our businesses, the goods we produce here could “leak” to countries with low environmental standards – generally more polluting – thus increasing the total GHGs released into the atmosphere, despite our intention to decrease them.
However, to ensure that our price on carbon does not harm the economy or the climate through carbon leakage, the federal government must implement border carbon adjustments. This means taxing imports from countries that do not have a carbon pricing system.
The concept of climate clubs
William Nordhaus, who received the Nobel Prize in Economics for his research on the economic impact of climate change, proposes the concept of climate clubs. Countries with a reasonable carbon price would not have to pay border taxes – since they are “club members” – while those without a carbon price would be taxed in proportion to the intensity of their electrical networks. Thus, those with strong climate programs would not pay the economic or political price for their good deeds.
On the contrary, they would benefit from it, thereby ending the “prisoner’s dilemma” that is holding back the advent of a global climate movement.
Foreign companies – not just environmentalists – would push their governments to put a price on carbon – waving the stick of offshoring to club member jurisdictions in the negative. It also means that voters would demand a carbon tax because they would see greater prosperity in being green.
A realistic proposal
This proposal is realistic. It does not require international collaboration; countries that have a carbon tax will implement a carbon border adjustment to avoid carbon leakage. In fact, the European Union will start implementing this mechanism next year; Canada is committed to collaborating. Moreover, even without a carbon tax, the United States plans to apply a border adjustment in order to prevent the relocation of its industries to more carbon-intensive countries; US Senator Sheldon Whitehouse says there is a one in two chance it will be applied in the current year.
In short, climate clubs favor countries that practice carbon pricing, thus incentivizing non-members to become one or, at the very least, to reduce the carbon intensity of non-member countries.
It is perhaps the best tool we have to reduce global GHGs. The best thing is that this measure would not damage our economy, it is quite the opposite; it would support and facilitate the energy transition of local businesses. There would no longer be unfair competition against contestants residing in environmentally lax jurisdictions.
That said, there are other – complementary – tools to accelerate the energy transition without causing carbon leakage. The green budget coalition promotes differentiated contracts; the latter encourage the emergence of new technologies with targeted contracts. This mechanism is less costly than the conventional subsidy and is not subject to carbon leakage.
Carbon pricing is an essential tool to tackle the climate crisis. Nevertheless, it gives rise to carbon leakage. Climate clubs present themselves as a realistic and efficient form of carbon border adjustment to solve this problem.