## Four Charts on Canada’s Carbon Pollution Pricing System

_IMF News, March 18, 2021_

## Source details

**Canonical URL:** [Four Charts on Canada’s Carbon Pollution Pricing System](https://www.imf.org/en/news/articles/2021/03/17/na031821-four-charts-on-canadas-carbon-pollution-pricing-system)

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## Bibliographic details
- Authors: Ian Parry
- Published: March 18, 2021

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### Overview and objectives
- Author: Ian Parry, IMF Fiscal Affairs Department; March 18, 2021.
- Canada has pledged to cut greenhouse gases by about 30 percent below current levels by 2030 and to achieve emissions neutrality by 2050.
- To be carbon neutral, emissions would need to be cut by one-third below current levels by 2030, and by two-thirds by 2040.

### Design of the federal carbon pricing backstop (Pan-Canadian Framework)
- The federal backstop establishes a carbon price “floor” while allowing provinces and territories flexibility to develop their own systems.
- The federal price will progressively rise from CAN$40 per ton in 2021 to CAN$170 per ton by 2030.
- Expected impact: help cut nationwide carbon dioxide (CO2) emissions about 33 percent below business-as-usual levels, in line with Canada’s targets.
- Without such mitigation, Canada would be the tenth largest emitter in absolute terms in 2030.

### Distributional effects and household impact
- A drawback of carbon pricing is higher energy prices affecting households, especially lower-income families who spend a greater proportion of income on energy.
- Under the current plan, the burden for the average Canadian household in 2030 will be about 2 percent of consumption.
- Canada returns carbon pricing revenues to households in the form of a tax rebate or through investments, offsetting about 80 percent of the burden.
- This revenue recycling is highlighted as especially important during the COVID-19 recovery.

### Competitiveness concerns for industry
- Energy-intensive firms competing in global markets (e.g., metals and chemicals) face competitiveness concerns.
- Even a CAN$50 price would raise costs 1-5 percent for these firms.
- Policy in Canada: these firms are required to reduce their emissions per unit of production but are not required to pay taxes on their remaining emissions.

### International context and policy implications
- Momentum for carbon pricing is building globally: carbon prices in the EU have recently risen to US$45 per ton; China and Germany have introduced pricing schemes.
- Scaling up mitigation is difficult when countries act alone because of international competitiveness concerns and uncertainty about other countries’ commitments.
- Proposal: an international carbon price floor where large emitting countries agree to implement a minimum price on carbon emissions and meet mitigation commitments.
  - Design considerations: could be equitable with stricter requirements for advanced economies and assistance for lower-income economies.
  - Flexibility: could accommodate alternative approaches and be applied flexibly across countries.
  - Effectiveness: argued to be more effective than border carbon adjustments.
- Canada’s approach—governments having flexibility to meet a higher-level pricing requirement—is presented as a prototype for global application.

*Source: Four Charts on Canada’s Carbon Pollution Pricing System, IMF News (Ian Parry), March 18, 2021.*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Read the report](https://www.imf.org/en/Publications/CR/Issues/2021/03/17/Canada-2021-Article-IV-Consultation-Press-Release-and-Staff-Report-50273)
- [Read the press release](https://www.imf.org/en/News/Articles/2021/03/17/pr2171-canada-imf-executive-board-concludes-2021-article-iv-consultation-with-canada)
- [Canada and the IMF](https://www.imf.org/en/Countries/CAN)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2021/03/17/na031821-four-charts-on-canadas-carbon-pollution-pricing-system_