Philippe Mercure’s editorial is right: the price from Quebec’s carbon market is too low and it’s unfair for the other Canadian provinces1.
As we learned The Pressmajor Quebec polluters will pay, on average, $9 per ton of greenhouse gases (GHG) for the period 2024-20302while the federal program carbon price currently sits at $50 (and will reach $170 in 2030).
Faced with this observation, the Premier of Alberta is right: Quebec receives preferential treatment. Which sets the table for more Quebec bashing and increases tensions within the federation.
The situation is embarrassing: how can Quebec claim to be a climate leader if it is lax with regard to its own climate policies?
To better understand what’s going on, let’s take a look at Canada’s main ecofiscal mechanisms.
The carbon exchange
Established in 2013 in collaboration with Ontario and California, the Carbon Exchange offers pollution rights to major polluters. The latter can use them, or reduce their pollution and sell their credits to Quebec or Californian companies – Ontario left this mechanism under the leadership of Doug Ford.
In addition, Quebec auctions carbon rights and uses the revenue from this sale to finance climate action through the Electrification and Climate Change Fund, formerly known as the Green Fund.
Consequently, the Carbon Exchange has what is called a “double evidence”: it reduces pollution by applying a price on pollution, in addition to financing the energy transition thanks to the income generated by the carbon market. The carbon exchange therefore reduces pollution twice.
Unfortunately, this program has a gaping flaw: the number of pollution permits is too high, which gives companies little incentive to reduce their polluting emissions.
The federal carbon tax
Implemented in 2019, the federal carbon tax covers Prince Edward Island, Ontario, Alberta and Saskatchewan. It puts a price on pollution and then returns the money directly to households. A particularly interesting aspect of the federal system is that 80% of households receive more climate revenue than they pay in carbon tax.
The federal carbon tax then turns out to be a redistributive policy that fights climate change3.
The balance sheet
So, should we turn to the federal carbon tax?
Personally, I prefer not to open Pandora’s box. A public debate on these policies could indeed accentuate cynicism towards ecofiscal mechanisms – which would be counter-productive.
Conversely, opting for a reform of the current carbon exchange seems to be the way to go.
The first step would be to reduce the number of permits issued, as requested by the editorialist Philippe Mercure as well as the organizations Greenpeace, Équiterre, Nature Québec and the David Suzuki Foundation.
The second step would be to index the minimum price for issuing carbon credits to the federal carbon tax, or to an amount slightly below – the carbon exchange has “double evidence”, after all.
Butter and butter money
Such a reform would ensure the effectiveness of a carbon tax – the literature emphasizes that it is more effective in reducing GHGs than the carbon exchange – but also ensure popular support for the system. As Éric Lachapelle, professor of political science at the University of Montreal, points out, the Carbon Exchange is more popular than its counterpart.
In addition, revenues from the carbon market set the stage for so-called green industrial policies, such as theInflation Reduction Act in the United States – the most important climate policy in history4.
Market mechanisms such as the carbon exchange are crucial, of course, but they must be accompanied by state subsidies in order to ensure the decarbonization of the economy.
The technologies of tomorrow are still in their infancy and compete against mature but polluting technologies. A price on carbon is not enough to make them competitive.
As a result, to achieve the economies of scale as well as the affordability necessary to decarbonize our economy by 2050, we must support them more – something that the income from the carbon exchange allows.
Conclusion
Quebec has everything it takes to be a climate leader. The problem is that this capacity is not accompanied by the necessary will, which results in lax climate policies.
Applying the above recommendations would provide Quebec with the means to achieve its ambitions, in addition to reducing the tensions that divide the Canadian federation.