Climate Change

North American Carbon Pricing

November 4, 2016  • Greg Gershuny

In the five months since the Aspen Institute and the Partnership for Responsible Growth held the first North American Carbon Price Roundtable, entitled “Beyond Paris: The Road toward a North American Carbon Price”, much has happened… on one side of the US and Canadian border.  On October 4th, a group of leaders from industry, non-profits, academia, and government gathered to discuss the potential for carbon pricing, how to garner industry support for the development of a continental price on carbon, and to deliberate paths forward on.

Before the 2015 elections in Canada, climate change wasn’t a large part of the debate.  The differences were over how fast, how much, and when to act on climate; not whether climate change is real.  When Canadian Prime Minister Justin Trudeau’s government took over in late 2015, he had a mandate to act on climate change.   On October 3, Prime Minister Trudeau gathered the provincial governments and announced that starting in 2018 there will be a bench mark for pricing carbon, starting at $10 CAD and rising to $50 by 2022.  There will be much flexibility left to the provinces to decide how to implement, and importantly the money from the tax will remain within each province.

In the US meanwhile, little movement has happened on a carbon price.  The US is moving down a regulatory path to reducing carbon, one sector at a time, with the clean power plan and CAFÉ standards, as well as with tax incentives to low carbon options through the ITC and PTC extenders passed in December 2015.  Many groups, both NGO’s, companies, and elected officials still feel burned from the 2010 Waxman-Markey experience, and don’t seem willing to come together in support of a national carbon price.

In the US, little movement has happened on a carbon price.

Many business leaders believe that a carbon price is both the best market focused route to solving climate change and that it is also the right thing to do.  A carbon price would be economy wide, not targeted specific sectors, and would be technology neutral.  Additionally, the financial sector is interested in carbon pricing as a proxy for risk.

The Trudeau government’s initiative to implement a single nationwide carbon price is based on its conclusion that without such a bold step, Canada cannot reach its Paris target (a 30% reduction in greenhouse gas (GHG) emissions from its 2005 level). Half a dozen independent analyses all conclude that without some new and more aggressive climate policy embodied in legislation, the U.S. probably will not be able to achieve much more than two-thirds of its Paris goal (26-28% reduction of emissions from the 2005 level) either even using every available regulatory tool under current law.

Governmental leadership in Canada, first by the provinces and now the national government, has been made possible in large part because of support from a significant portion of the hydrocarbon industry as well as the mining and other business sectors. Business leaders in Canada have concluded that with a highly carbonized economy, market mechanisms leading to decarbonization will be essential to the nation’s future competitiveness.

In the US a major challenge in moving forward to build support for carbon pricing in the face of the current political polarization over climate policy and the general reluctance against tax increases and increased energy pricing is how to motivate the business community to become more involved.

Shortly after the roundtable, Jim Prentice, Former Premier of Alberta and roundtable participant, as well as three others, were killed in a plane crash in British Columbia. The Aspen Institute’s Energy and Environment Program and The Partnership for Responsible Growth were deeply saddened and would like to express our condolences to his friends, family and loved ones.

This short summary of the October 2016 roundtable on North American Carbon Pricing attempts to capture information, ideas, and perspectives presented during the roundtable. Not all views expressed were unanimous; not all comments represent the aim or outcome of the meeting. Participants were not asked to agree to the wording of this summary and, therefore, speakers and participants are not responsible for its contents.