OTTAWA — The federal government wants to “future-proof” the carbon price against political decisions to cancel or lower it.
That could include legislation to enshrine the carbon price and its upward trajectory into law. Or it could mean signing contracts with investors guaranteeing compensation if the carbon price does not rise as promised, negatively impacting their investment.
The pledge is made in the new emissions reduction report submitted Tuesday by Environment Minister Steven Guilbeault, which states that carbon pricing is the “cornerstone” of Canada’s climate action plan.
Pollution, including greenhouse gas emissions, has social costs and carbon pricing is a method of applying those costs to the person or entity causing the emissions. It also makes investing in technology that reduces emissions more economically attractive than the status quo.
But that pull diminishes if there is no assurance that the carbon price will be as promised.
Guilbeault said in an interview that he heard from a number of private sector investors that they are withholding funding for emissions-reducing projects because the incentive to invest is based on a carbon price that is politically fragile.
“They say we need certainty because we make important investment decisions based on carbon prices, and what happens if there’s a new government in a year or three and suddenly it’s gone,” he said. †
“So this is really a response from the federal government to the investors and the private sector saying we hear you. And we’re looking at ways we can basically future-proof carbon prices in Canada.”
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Michael Bernstein, executive director of climate policy organization Clean Prosperity, says investors are not moving their money toward climate action as quickly as they need to, adding that legally establishing confidence in the carbon price is one of the key things in the new emissions plan.
He used carbon capture and storage as an example, saying it generally costs less than $110 to install a ton of emissions. The current national price for pollution will increase by $10 to $50 per tonne of emissions on April 1, but will increase by $15 a year until 2030, when it reaches $170.
“So if you have industrial emitters, who are facing a carbon price of $170 per tonne by 2030, they will of course have an incentive to pay for the carbon capture instead, which is less expensive, and avoid paying the carbon price” , he said. † “In short, it gives them the economic incentive to make these investments. They can show their investors and their board that there will be economic returns from making these investments.”
Carbon pricing has been a political football in Canada for more than a decade, playing a role in every federal election and multiple provincial elections since at least 2008.
Carbon prices have also been vulnerable to government changes.
Ontario’s cap-and-trade system was eliminated in 2018 after the progressive conservative government of Doug Ford took office. A year later, Prime Minister Jason Kenney killed the carbon price introduced in Alberta in 2017 by the Rachel Notley government.
Since 2019, the federal government has imposed its national system on every province without a comparable provincial award, including Alberta, Ontario, Manitoba and Saskatchewan.
Federal conservatives have repeatedly pledged to cut the carbon price. Deposed Tory leader Erin O’Toole had proposed a minor carbon pricing program, sparking anger and becoming one of the reasons he was voted out by his caucus in January.
Several candidates running to replace him also pledge to cancel or at least amend the national system.
Marty Reed, a founder of Vancouver-based venture firm Evok Innovations, said “consistent, predictable pricing” is critical for investors in things like carbon capture and storage.
“Without that confidence, investors simply won’t make the kind of commitments necessary to build billions of dollars in capital projects,” he said.
Sarah Petrevan, director of sustainability at the Cement Association of Canada, said uncertainty over carbon pricing is “a major issue” for cement companies, all of which are on board to reduce emissions.
It’s not the only barrier to investment, Petrevan said. Policies to boost demand for zero cement are also critical, she said.
But projects to reduce emissions are lengthy and expensive, and anything the government can do to provide assurance that the carbon price driving these investments will still be there when the projects are completed will help, she said.
“Companies thrive on security.”