Lessons from Canadian Climate Policy Efforts for America’s Green New Deal
Brett Cease, Mark Purdon, and Ross Astoria
The Green New Deal (GND) outlines a bold vision for transitioning towards a low-carbon economy. Canada’s experience with climate policy over the past decade offers important lessons for America’s GND given its similarities with a federal system of government and large regional economic differences. Canada’s experience informs GND planners to attend not only to carbon pricing and regulations but also to institutional structures. In particular, Canada’s mitigation efforts suggest that federal institutions should support states’ experimentation with climate policy. Canada has confronted the climate challenge through the establishment of a flexible system which allows provinces to lead while the federal government backstops provincial policy efforts with mandated minimum federal carbon pricing, federal regulatory instruments and the management and allocation of carbon revenues. Quebec and British Columbia, two provinces on the frontier of climate policy, provide illustrative examples.
Key Design Elements of Canadian Federal Climate Policy
To meet the goals laid out in Canada’s Paris commitments, the cornerstone of Canada’s federal efforts has been the Pan-Canadian Framework on Clean Growth and Climate Change. This framework introduces carbon pricing at the federal level, but only kicks in when provinces fail to implement their own carbon pricing, whether a carbon tax or a cap-and-trade system. In such situations, the federal carbon price begins at $10 CDN per tCO2e in 2019, capping at $50 CDN by 2022. The Canadian federal backstop returns all revenues to provincial residents, ensuring revenue-neutrality while also developing a suite of complimentary regulatory instruments including a national clean fuel standard.
Quebec’s Climate Policy Features
Quebec has priced carbon with a cap-and-trade system linked with California’s since 2014. Quebec chose to link its cap-and-trade system with California’s because of its comprehensive coverage across more than one economic sector (including both power generation and transportation). However, Quebec firms have often satisfied their mitigation obligations through the purchase of offsets from California, meaning any resulting positive economic and environmental benefits are largely enjoyed in California. Thus, if GND architects desire carbon pricing revenues to initiate domestic economic rejuvenation, linked markets that include offsets appear suboptimal. Nevertheless, the advantage of this approach in Canada has been that firms are pricing carbon into their decision-making and reducing emissions at lowest-cost amongst linked partner jurisdictions.
Quebec has also developed a portfolio of complementary government programs through its Climate Change Action Plan, many of which align with GND priorities. For example, Quebec’s carbon markets have raised a total of $3.7 billion CDN for climate-related investments. Revenues are deposited in a Green Fund, which has supported an ambitious 2030 Energy Policy and the Transition énergétique Québec (TÉQ), an agency promoting the energy transition. Recently the Quebec government has launched efforts to develop a comprehensive Electrification and Climate Change Action Plan, to be published in 2020. As in Canada, state carbon pricing mechanisms can generate significant revenues leading to possible uses supporting both mitigation and GND programs such as economic rejuvenation.
British Columbia’s Revenue Use Design Features
On the other side of the country, the province of British Columbia (BC) adopted a revenue-neutral carbon tax in 2008 that has been called ‘perhaps the closest example of an economist’s textbook prescription for the use of a carbon tax to reduce GHG emissions.” This comprehensive Pigouvian tax started at $10 CDN, rose to $30 CDN by 2012, and has recently begun to rise again to $50 CDN in 2021. Its distinguishing feature, revenue-neutrality, aimed to return the revenue back to people via tax cuts and targeted payments for low-income and rural households –two constituencies central to the GND planners—to protect them from rising energy costs.
However, its design has evolved, with the repeal of carbon tax’s revenue neutrality provision in 2017, resulting in more corporate tax credits with regressive impacts. One key takeaway for GND architects highlights the challenges any government will face in administering the revenue equitably. For example, BC’s carbon tax framework has begun to fold in unrelated tax credits. Some of these are relatively small and constituent-oriented, while others are large and include credits that benefit wholly unrelated interests such as the film industry. Another takeaway for GND architects spotlights the importance of transparency in revenue design. BC did not prioritize nor highlight the tangible benefits its programs provided to constituencies like other successful models of subnational carbon pricing have done. As a result, BC’s original twin goals of market-based climate mitigation coupled with economic growth became subsumed by revenues going to non-climate-related special interests while generating considerable opposition.
Conclusion
Overall, one of the emerging climate policy lessons from the Canadian experience for GND planners is that where carbon pricing revenue is spent matters. As both Quebec’s and BC’s example provide, spending utilized for protecting local constituencies in the clean energy transition and accelerating local development of renewables and other climate programs brings popular support as opposed to the trade-offs of disapproval when revenue is spent towards other interests –whether it be international carbon markets or unrelated industries. GND architects stand to benefit from following the lead of what early adopting Canadian provinces have highlighted – a key balance to climate federalism lies in allowing space for successful experimentation with climate policy design, while ensuring standards and reductions are comparable across all provinces with a blend of market-based and effective regulatory designs.
Brett Cease is a doctoral candidate in the Public Policy & Political Economy program at the University of Texas at Dallas.
Mark Purdon is an Assistant Professor at the École des sciences de la gestion at the Université du Québec à Montréal.
Ross Astoria is an Associate Professor of Political Science & Law at University of Wisconsin, Parkside.