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Canada unveils plan for national carbon tax of C$50/tonne by 2022

SNL Image

The coal-fired Genesee Generating Station suppliespower to Alberta.

Source: Capital Power

Canada's federal government plans to impose a nationwideminimum carbon levy aimed at reaching the country's emissions targets andbringing unwilling provinces in line with national standards.

In the absence of applicable provincial or territorialtaxes, Canada will impose a carbon tax on greenhouse gas emissions of C$10 permetric ton starting in 2018, to increase by C$10 per tonne per year until itreaches C$50 per tonne in 2022, Prime Minister Justin Trudeau said in a speechto Parliament Oct. 3. Jurisdictions with equivalent or greater carbon taxes, orthat participate in cap-and-trade schemes of equal value, will be exempted fromthe tax.

Money raised by the tax will be returned to the province orterritories in which it was raised, Trudeau said. The proposed tax requiresapproval by Parliament. Trudeau's Liberal Party holds the majority of seats inthe government, which makes passage of the law likely.

"If neither price, nor cap-and-trade, is in place by2018, the Government of Canada will implement a price in thatjurisdiction," Trudeau said. "Whatever approach is chosen, thispolicy will be revenue-neutral for the federal government."

Canada's government has committed to reducing carbonemissions by 17% by 2020 and 30% by 2030, using 2005 as a baseline formeasurement. Quebec participates in a cap-and-trade scheme with California,while Ontario has signaled its intent to join the program. Other provincesincluding Alberta and British Columbia have imposed carbon levies.

Alberta, Canada's largest energy-producing province, hasalso imposed a cap on emissions from oil sands developments. Alberta PremierRachel Notley said her government supports putting a national price on carbon,but the federal government must work to reduce the pipeline bottleneck that hasadded to the woes caused by low prices in the province's oil sector.

"With regard to the federal government's proposalstoday, Alberta will not be supporting this proposal absent serious concurrentprogress on energy infrastructure, to ensure we have the economic means to fundthese policies," Notley said in an emailed statement. "It is time forthe Government of Canada to act on this issue."

The federal levy represents a step forward in creating acredible national climate policy, said Merran Smith, executive director ofClean Energy Canada, a British Columbia-based environmental think tank.

"Whether through a tax or a cap, carbon pricing is thecost of doing business in today's world," Smith said in an email."Pricing carbon pollution is the new normal. Today's announcement givesinvestors everywhere in Canada a clear signal: The cost of carbon pollution isgoing up and there is a market for climate solutions. That predictability willaccelerate Canada's clean energy transition, drive innovation and help ussucceed in a global clean energy market that's seeing record growth."

The carbon levy announcement comes in the wake of thefederal government's conditional approval of the -led C$36billion LNG projectin British Columbia last week. Trudeau's government is expected to rule on anumber of key energy infrastructure projects by the end of the year, includingKinder Morgan Inc.'sTrans Mountain pipeline expansion and Enbridge Inc.'s Line 3 expansion.