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Closing the gap: PBO says overcoming Canada's 77 Mt carbon shortfall by 2030 could carry a hefty carbon price

by Mark Sabourin
EcoLog, 10/15/2020 1:49:00 PM

A revised estimate in “Carbon pricing for the Paris target: Closing the gap with output-based pricing” by the Office of the Parliamentary Budget Officer (PBO) says Canada could be looking at a carbon price in the range of $117 per tonne to $289 per tonne in 2030, if it is to meet its Paris Agreement commitment and it implements no additional measures beyond those already announced.

Announced measures, including “works in progress” like the Clean Fuel Standard, will still leave Canada 77 Mt short of its 2030 target of 588 Mt, according to Environment and Climate Change Canada’s own projections.

The $289 per tonne projection for 2030 is a worst-case scenario. The PBO says the $289 figure assumes that output-based pricing for large emitters remains at a static $50 per tonne over the entire 2022-2030 period. Though this would help ensure that large emitters in energy-intensive, trade-exposed sectors remain internationally competitive, it would shift the burden of further emissions reductions almost entirely onto the shoulders of consumers and emitters not subject to output-based pricing.

However, the energy-intensive, trade-exposed sectors may not need that level of protection if their international competitors are also made subject to some form of carbon pricing. If consumers and large emitters share the burden required to close the 77 Mt gap in 2030, consumers and emitters not subject to output-based pricing would pay $131 per tonne in 2030. Adjusted for inflation, that represents $107 per tonne in 2020 dollars.

In either case, the PBO projects only a modest impact on the economy. The GDP in 2030 would be fractionally lower than it would be if no additional measures were taken after 2022. That’s because the PBO assumes that the federal government continues its current practice of returning carbon pricing revenues to households in lump-sum payments, suggesting that even though the cost of carbon may appear high, its impact on households will not be high.

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