Update on Pan-Canadian Climate Change Framework

On December 9, the Government of Canada announced the Pan-Canadian Framework on Clean Growth and Climate Change (the Framework), which was signed on to by eight provinces and three territories. The agreement is a culmination of extensive negotiations, particularly on the heels of the Paris Agreement, among provincial, territorial and federal governments, and is intended to facilitate Canada’s transition to a low-carbon economy while combatting climate change. The four "pillars" of the Framework are: carbon pricing; complementary climate actions; adaptation measures; and actions to accelerate innovation, support clean technology, and create jobs.

What You Need To Know

• An essential feature of the Framework is a federal benchmark for pricing carbon pollution. To meet the benchmark, jurisdictions can implement either an explicit price-based system (starting at a minimum of $10 per tonne in 2018 and rising to $50 per tonne by 2022) or a cap-and-trade system (with annual cap adjustments that correspond to the emissions reductions under price-based systems). A five-year review of the comparative effectiveness of carbon pricing systems will be undertaken by 2022.
• The Framework describes complementary actions to be taken by federal and provincial governments to reduce emissions in a number of sectors, including electricity, buildings, transportation, industry, forestry, agriculture and waste, and government operations. Notably, traditional coal-fired generators are expected to be phased out across Canada by 2030.
• Manitoba is withholding support reportedly over concerns related to transfer payments. Saskatchewan is also objecting to the plan, in part on the basis that the federal government lacks the constitutional authority to impose it on the provinces.

Highlights of the Framework

Carbon Pricing Benchmark

The Framework outlines a federal benchmark for carbon pricing. To meet the benchmark, jurisdictions can implement either: (i) an explicit price-based system (e.g., British Columbia’s carbon tax or Alberta’s carbon levy tied to a performance-based emissions system); or (ii) a cap-and-trade system (e.g., Ontario and Québec’s programs under the Western Climate Initiative). The benchmark will apply to substantively the same sources as British Columbia’s carbon tax, and will become more stringent over time to support Canada’s 2030 emissions reduction target of 30% below 2005 levels.

For price-based systems, the benchmark carbon price would start at a minimum of $10 per tonne in 2018, rising by $10 per year to $50 per tonne in 2022. In contrast, jurisdictions that adopt cap-and-trade are expected to achieve: (i) emissions reductions of at least 30% below 2005 levels by 2030; and (ii) declining annual caps to at least 2022 that correspond, at a minimum, to the projected emissions reductions resulting from the carbon price that year in price-based systems. Revenues derived will remain in the jurisdiction of origin. As a backstop, the federal government plans to introduce a price-based system in jurisdictions that do not meet the benchmark.

Complementary Actions

In addition to carbon pricing, the Framework sets out complementary actions to be taken by federal and provincial governments to reduce emissions in a number of sectors, including power generation, built environment, transportation, industry, forestry, agriculture and waste, and government operations. Notably, in the electricity sector, traditional coal plants are expected to be phased out across Canada by 2030, and various levels of governments have committed to increase the use of electricity from cleaner sources (including renewables and clean gas-fired units).

Other complementary measures include: (i) the adoption of a model code for existing buildings by 2022 and a "net-zero" code for new buildings by 2030; (ii) the development of a national strategy by 2018 aimed at popularizing zero-emission vehicles and associated infrastructure; and (iii) reducing methane emissions from the oil and gas sector by 40-45% by 2025. Together, measures outlined under the Framework are expected to result in 86 Mt of the 219 Mt of total reductions needed to achieve Canada’s 2030 emissions reduction target.

Federal Investments

The Framework also indicates various opportunities for federal investments, particularly in relation to infrastructure and clean technology. Some examples of proposed federal investment, including some that were previously announced, are: (i) $81 billion over 11 years in infrastructure spending (in addition to the investments outlined in the 2016 federal budget), including in green infrastructure; (ii) funding to support emissions reduction measures through the $2 billion Low Carbon Economy Fund; (iii) $1 billion committed over four years to support clean technology in natural resources and agriculture sectors; and (iv) $2.65 billion in financing to support climate change mitigation and adaptation efforts in developing countries.

Other Issues and Aspects of the Framework

To confirm the overall approach and compare the effectiveness of carbon pricing regimes across Canada, an interim review will be completed in 2020, followed by a five-year review by 2022. The potential for disparate pricing effects of carbon taxes and cap-and-trade was one of the key issues in negotiations leading up to the adoption of the Framework. British Columbia Premier Christy Clark insisted prior to signing that her province’s carbon tax (currently at $30 a tonne) should not rise until the effective carbon price in other jurisdictions catches up and a review of the comparative effects of these systems is undertaken. It is not yet clear how the federal benchmark will align standards for explicit price-based systems and cap-and-trade systems.

The governments of Saskatchewan and Manitoba have indicated that they will not adopt the Framework. Saskatchewan Premier Brad Wall opposed the Framework and indicated that he would be reviewing the province’s legal options to challenge it, including on constitutional grounds. In adopting the Framework, the federal government made no comment on its constitutional basis. Premier Wall has opposed the Framework on the basis that it would be economically unwise. Manitoba Premier Brian Pallister’s objection reportedly relates to a disagreement with the federal government over healthcare transfer payments.

For further details on the Framework, including on other aspects such as adaptation measures, plans to support clean technology, innovation and jobs, and reporting and oversight, please consult the Government of Canada’s website.