Canada Can Handle a $100/Tonne Carbon Tax


Alfred Palmer/Wikimedia Commons

[Editors Note: Sometimes the medicine seems difficult to endure but we need to decarbonize. Using the market to drive change is logical and will lead to innovation and a stronger economy.]

With federal and provincial governments working towards a $50-per-tonne floor price on carbon by 2022, the chief economist at the Conference Board of Canada says the Canadian economy can handle a carbon tax of up to $100—even if the United States has no equivalent pricing system in place.

Carbon pricing “does create a competitive disadvantage, it does increase the economic challenge, but the impact is relatively modest so we can go it alone,” said Craig Alexander, the Conference Board’s senior vice-president and chief economist, during a panel discussion organized by iPolitics.

“According to studies done when Alexander was a top economist at TD Bank Group, Canada could hit its emissions targets with a carbon price—imposed either through a direct tax or a cap-and-trade system—and only suffer an approximate 0.15% decrease in economic growth each year,” the online news outlet reports.

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Alexander pointed to exchange rates as a tool to balance out that economic impact. “All else being equal, it should lead to a weaker Canadian dollar,” he said. “When we do the modelling on the export competitiveness angle, the Canadian dollar is a very big shock absorber.”

And “if more expensive exports don’t push down the dollar, there may be pressure to impose a border adjustment tax against countries that aren’t imposing a carbon price, since it’s often the recommended policy tool,” iPolitics reports.

The Canadian economy can handle a carbon tax of up to $100 — even if the United States has no equivalent pricing system in place.

But that may not be advisable “in the current environment,” Alexander told the panel. “During the former U.S. administration, they probably wouldn’t like a border adjustment tax, but they’d understand it in the context of addressing environment policy. I think the current administration would deem it, ‘Canada is looking to create a competitive advantage by putting in place a border tax,’ which actually would incent America to do the same against Canada.

“Quite frankly, this would be highly undesirable and could actually be quite harmful.”

This article first appeared on The Energy Mix