Quebec was a leader in the environment when it launched its carbon exchange in 2013. But more than 10 years after this great step forward, our system is not running smoothly. So much so that we are almost jealous of the federal carbon tax that applies to our neighbors!
What’s wrong?
On the one hand, the price of carbon in Quebec is much lower than that of the other provinces, which are starting to cry injustice. The question arises: is our pricing of pollution too timid?
On the other hand, Quebec is unable to invest the money collected through the carbon exchange which should be used to finance green initiatives. On this account, we wonder if it would not be simpler to return the money to taxpayers, as Ottawa is doing with the carbon tax.
Well, well… the idea is not to swap our system for that of Ottawa. We risk finding ourselves left with nothing, while Pierre Poilievre’s conservatives swear to ax the carbon tax, without proposing anything to replace it. Even the New Democratic Party and the Bloc Québécois supported a Conservative motion on Wednesday calling for a televised federal-provincial summit on the carbon tax.
Nonetheless, the Quebec system deserves a serious overhaul. The government itself admits this in veiled terms in its budget last March where it speaks of “possible optimization of the carbon market”.
Let’s take a look under the hood…
With Quebec’s carbon market, companies must purchase rights to have permission to emit greenhouse gases (GHG). As the amount of rights decreases from year to year, emitters are forced to reduce their emissions.
Our cap system therefore has the advantage of offering more predictable results than the federal tax, which acts indirectly by adding to retail prices. This encourages individuals to reduce their consumption, by choosing a less energy-consuming vehicle or by better insulating their home, for example.
But the problem in Quebec is that the government has issued too many rights. Because of this glut, the price for emitting a ton of GHGs is $57, which corresponds to 13 cents per liter of gasoline. This is significantly less than the price of the carbon tax which is $80 per tonne, or approximately 18 cents per liter.
This gap is not huge (especially since gas taxes are higher in Quebec). But it will expand, as the carbon tax will reach $170 per tonne in 2030. This will increase pressure from other provinces for us to adjust our system.
In fact, our market is not doing its job.
The proof ? According to an analysis by the Chair in Energy Sector Management at HEC Montréal, current capping rules would allow Quebec to completely miss its decarbonization target for 2030, i.e. a reduction in GHG emissions of 37.5% under the 1990 level1.
The worst thing is that after 2030, the price of carbon risks rising suddenly, which could create an outcry from the population.
It would be better to make emission rights rarer now, so that prices rise more gradually. Otherwise, people will find themselves facing a wall, unable to adjust their habits so quickly.
Politically, it will take courage for the Coalition Avenir Québec (CAQ) to act today, instead of postponing the problem until tomorrow. But wait, there might be a good way to make it easier…
You should know that the money collected from the sale of rights is directed to the Electrification and Climate Change Fund (FECC), formerly the Green Fund, which finances decarbonization initiatives.
Gold, The Press revealed this week that the FECC is sitting on a surplus of 1.7 billion and that Quebec is in no hurry to deploy this pot2.
Mind you, it’s better to keep money in reserve than to waste it on ineffective initiatives that disproportionately favor the well-off, as in the past. Despite the corrections made, the Commissioner for Sustainable Development still denounced in 2022 the lack of transparency and accountability of the Fund3.
All of this undermines the credibility of our carbon pricing in the eyes of the public. It would therefore be essential to set up an independent watchdog, as in the United Kingdom, to monitor the performance, or ineffectiveness, of the measures put in place as part of the green transition.
But Quebec could also decide to return part of the money to taxpayers, in the form of tax cuts (as in British Columbia) or royalties (as Ottawa does with the carbon tax).
It is by paying progressive transfers to households that we make carbon pricing most acceptable to citizens, reports a study by the Chair in Taxation and Public Finance at the University of Sherbrooke4.
Social acceptability will be greatly needed to avoid a popular backlash that could set back the energy transition.
So, sending checks to citizens is not so stupid… especially if it allows the CAQ to digest the “optimization” of the carbon exchange which will increase carbon pricing.
Ultimately, polluting would cost more. But citizens who change their behavior would have more in their pockets.
1. Consult the analysis of the Chair of Energy Sector Management at HEC Montréal (in English)
2. Read “A surplus of 1.7 billion criticized from all sides”
3. Consult the report of the Sustainable Development Commissioner
4. Consult the study by the Chair in Taxation and Public Finance at the University of Sherbrooke