Policy Forum: Editors' Introduction—Cross-Border Issues in Carbon Pricing

ABSTRACT

Under the 2015 Paris Agreement, Canada is committed to reducing its greenhouse gas (GHG) emissions by 40 to 45 percent from 2005 levels by 2030.1 As of 2019, a full 4 years after the agreement was signed, Canada had achieved emission reductions of only 1 percent. [...]meeting our Paris commitments will require a 39 to 44 percent reduction in GHG emissions in just 11 years.2 To put into perspective the structural economic change required by a 39 to 44 percent cut in emissions, the changes that took place in 2020, the first year of the COVID-19 pandemic-working from home, eliminating most business and personal air travel, and so on-reduced Canada's carbon (CO2) emissions by 8 percent from 2019 levels.3 Meeting the Paris commitments would require Canadians to not only preserve 2020-level emissions, but also achieve three or four times that level of reductions by the end of the following decade. [...]the need for equalization is also reduced. Yet, because of the equalization program's "fixed-growth rule," the size of the program would not decline, even with a diminished need for equalization. [...]Snoddon concludes, "Overequalization often results, with Quebec and sometimes Ontario as the main beneficiaries. Christians suggests that to the extent that economists can estimate the amount of externalized environmental costs with increasing detail and precision, the income tax base could be legislatively reformed to deem such externalized costs to constitute additional taxable income to all of the relevant parties throughout the fossil fuel production and consumption cycle.16 Christians acknowledges that there are practical difficulties in estimating the environmental costs created by individual firms, especially given Canada's selfassessment-based income tax system.