Canada’s greenhouse gas (GHG) emissions are projected to be 12% lower in 2030 with carbon tax compared to a scenario without it, according to new data from Environment and Climate Change Canada. The data also indicates that the carbon pricing system could cause a $25-billion reduction in Canada’s GDP by the end of the decade, which is 0.9% below what it would be without this system.
The data, which was provided to the Parliamentary Budget Office (PBO), highlights the impact of carbon pollution pricing on national and provincial GDP from 2022 to 2030. However, it is not a comprehensive economic overview but rather focuses on specific economic impacts.
Environment and Climate Change Canada estimates that the fuel charge and industrial carbon pricing systems will contribute to nearly 80 million tonnes of GHG emissions reductions by 2030. This accounts for about one-third of the projected total reductions necessary to meet the goals set out in the 2030 Emissions Reduction Plan.
The importance of carbon pricing extends beyond direct economic impacts, as it also includes the benefits of reducing emissions. Canadians are already facing significant costs from climate change, including damage from wildfires and floods. The Social Cost of Carbon, a metric used to estimate these benefits, values the damages at $294 per tonne of CO2 emitted in 2030. Using this metric, the avoided costs from climate change due to the projected emission reduction from carbon pricing are estimated to be around $23.1 billion.
Abandoning carbon pricing without any replacement measures would forfeit these benefits. Moreover, replacing it with more expensive policy measures would unnecessarily increase costs for Canadians. A report from the Ecofiscal Commission suggests that carbon pricing could increase Canadian incomes by an average of $3,300 more in 2030 compared to alternative policy approaches.
The increasing costs of climate inaction are well documented. The Canadian Climate Institute’s report, “Damage Control: Reducing the Costs of Climate Impacts in Canada,” estimates annual losses to real GDP could reach $35 billion by 2030 due to climate change. Furthermore, the Institute for Sustainable Finance notes that failing to invest in emissions reductions could cost Canada roughly double the GDP.
A thorough analysis of carbon pricing’s economic benefits should also include the resulting economic investments, the international competitive advantage of low-carbon technologies, job creation in these sectors, and technological innovation benefits. Carbon pricing encourages businesses to improve efficiency, invest in cleaner technologies, and shift towards renewable energy sources.
The Government of Canada estimates that annual investments of $15 to $25 billion are being made to reduce GHG emissions. Since 2019, proceeds from federal industrial carbon pricing systems have been reinvested into decarbonization projects totaling $2.5 billion, in collaboration with provincial governments, the private sector, universities, and other entities.
The data published in the report, “How Pollution Pricing Reduces Emissions,” reflects the impact of carbon pricing on reducing GHG emissions and includes details on its effects on GDP across Canada and its provinces for 2022-2030. This data encompasses the economic impacts of carbon pricing on different sectors, including gross value added, real investment, and labor incomes.