How decarbonizing pays: research scopes benefits of pricing models

Canada is in a position to significantly decarbonize while protecting, and even enhancing, economic performance, according to modeling completed by a Toronto-based decarbonization think tank.

Canadians for Clean Prosperity and Deep Decarbonization analyzed what would happen if Canada adopted one of two carbon pricing models: either a straight carbon tax similar to policy deployed by BC, or a hybrid carbon pricing model similar to the system proposed by the Alberta NDP, but at the national level.

The research shows both models would significantly reduce Canada’s greenhouse gas emissions (16% to 17% below 2005 levels by 2030), while the hybrid model actually boosts economic performance nationwide and in most regions. For energy-producing provinces, an Alberta-style model at the national level would boost GDP by 1.43% and 4.23% in Saskatchewan, compared to the results under the current set of federal and provincial policies.

The think tank also compared two options for recycling carbon tax revenues – either recycling all revenues as tax reductions, as done in BC, or allocating the revenues to increased spending on emissions reductions programs. Results showed cutting taxes would lead to slightly better GDP performance while increased environmental spending would lead to slightly increased emissions reductions. Neither recycling option was as significant for the environmental or economic outcomes as the type of carbon pricing system adopted.

The modeling concluded Canada would be best served to reduce CO2 emissions and maintain economic performance by adopting Alberta-style hybrid pricing and BC-style revenue recycling, which reduces personal and corporate income taxes.