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Prime Minister Justin Trudeau joined forces Tuesday morning with a group of foreign counterparts to advocate for a minimum carbon tax to be introduced around the world.
Such a policy would be aimed at reducing greenhouse gas emissions around the globe and help businesses and governments navigate carbon policy from one jurisdiction to another.
While Trudeau boasted about the successes of the carbon tax his government introduced in Canada, he also ruminated on how long and rough of a road it was to develop, build support for and defend politically.
“Sometimes at these international meetings, I have to remind people, Canada isn’t some magical place where it’s easy to do difficult, progressive things. It’s hard to do them in Canada as it is all across the world,” said Trudeau, during an event at the COP26 climate summit in Glasgow, Scotland.
“It’s always been hard to do this in the way that we know citizens want more action on climate but are always worried they are going to be the ones paying for the brunt of it.”
Developing the policy was complex, he said, in part because Canada is a major oil -and natural gas-producing country, its residents rely on heating and cooling because of extreme temperatures, and it is geographically large. It was introduced in 2019 at $20 a tonne and is set to rise to $170 a tonne by 2030 from the current $40.
“The challenge that we have is making something that is fair that brings Canadians along,” Trudeau said. “And yes, it was challenged by our political opponents. We had to fight all the way to the Supreme Court of Canada, but we had the right ruling that allows us to keep it in place. We won that battle.”
Tax would likely be recommended floor price
The carbon tax introduced by the Liberals raises the price of gasoline, natural gas and other fuels, but the costs are offset with rebate cheques provided with tax returns.
The policy has had its political critics, including several conservative premiers who have argued the tax hurts job growth and raises the cost of living. In the last federal election, the Conservative Party changed course by proposing its own form of a carbon tax.
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The obstacles and opposition to introducing a carbon-tax system domestically underscores how difficult it will be to find enough support for a global carbon tax.
Only about 20 per cent of global emissions are covered by carbon pricing, a figure Trudeau wants to see tripled by 2030.
The International Monetary Fund (IMF) has suggested an international carbon price should be flexible in providing a few different prices based on a country’s emissions and development. The organization proposes the system be launched first by the largest emitters — China, India, the U.S. and the EU.
The global carbon tax would also be a price floor similar to how countries are progressing with a minimum rate for international corporate taxation.
Interest in tax growing
Environment Minister Steven Guilbeault said Tuesday there is a level of interest in carbon pricing that he has never seen before, and that includes attention from members of the United States delegation.
The U.S. is one of only a few fully developed economies without some form of a carbon tax. So far, President Joe Biden has rejected a domestic carbon price although some states do participate in cap and trade programs, which are another form of carbon pricing.
Global business groups, including the Business Council of Canada, joined forces last week to push for an international carbon price strategy by calling on countries to agree on an “effective and fair” system to encourage companies to invest in reducing emissions.
Just as carbon taxes vary from one province to another, it’s a similar situation around the world.
The current average carbon price is less than $4 a tonne, according to the IMF. The highest price is in Sweden at about $174 per tonne (1,200 Swedish krona) and the lowest is about 47 cents in Ukraine (10 Ukrainian hryvnia).
Of the 164 countries belonging to the World Trade Organization (WTO), 69 have some sort of carbon tax in place.
“The problem that we face now, as much as I like the introduction of these regimes in different countries, we have a great deal of fragmentation,” said Ngozi Okonjo-Iweala, the WTO’s director-general.
“We’re hearing increasingly from business that they are finding this very difficult to navigate. When they find it difficult to navigate, then sometimes it results also in higher prices for consumers and others.”
Global price can give governments leverage domestically
Some countries are also concerned about carbon tax policies acting as a disguised protectionist measure, which would harm their ability to sell their products abroad.
A global carbon tax would be more transparent, fair and easier for countries to manage, said Okonjo-Iweala.
“Politically, it may be easier for some governments to manage if they can say, ‘Look, this is being applied globally,'” she said.
Even in Canada, the challenges to the tax domestically aren’t over. Trudeau’s government still needs to maintain support to achieve the goal of raising the carbon price to $170 by 2030.
Mark Carney, the former governor of the Bank of Canada and the United Nations special envoy on climate action and finance, spoke alongside Trudeau on Tuesday morning. He also emphasized the importance of Canada raising its carbon price.
“The carbon price today is interesting, but the carbon price toward the end of this decade is what’s relevant,” said Carney.
“What investors of companies are looking at is that forward carbon price.”