Despite additional carbon pricing, significant emissions reduction will be required to exceed the Paris target

The Parliamentary Budget Officer (PBO) today released his assessment of the impacts of the Government’s plan to exceed the 2030 target for Canada’s greenhouse gas emissions under the Paris Agreement.

In his report, Beyond Paris: Reducing Canada’s GHG Emissions by 2030, the PBO estimates that the Government’s plan to increase the federal carbon levy by an additional $120 per tonne to $170, and tightening Output Based Pricing System (OBPS) standards, will reduce Canada’s emissions by 96 Mt in 2030.

“Increasing the federal fuel charge to $170 per tonne and tightening OBPS will help Canada achieve over half of the 168 Mt reduction projected in Budget 2021. Nonetheless, significant reductions from less visible non-price policies, already announced, will be needed to reach that objective,” said Yves Giroux, PBO.

To achieve the 168 Mt reduction by 2030 projected in Budget 2021 and exceed the Paris target, the PBO estimates that announced non-price policies will have an effective cost of $91 per tonne—over and above the $170 federal carbon levy. These other policies include regulations as well as incentives to develop and adopt lower emissions technologies.

“Our estimates of the cost of announced non-price policies required to achieve the emissions reduction in Budget 2021 (exceeding the Paris target), are based on the assumption that the measures chosen are those with the lowest cost. That is to say, they are inherently optimistic,” adds Mr. Giroux.

The PBO estimates that the additional carbon pricing under the Government’s plan will lower real GDP by 0.8 per cent in 2030. Combined with the impact of announced non-price policies, if implemented at minimum cost, the projected level of real GDP in 2030 would be reduced by a total of 1.4 per cent.

According to Mr. Giroux, “Our assessment shows that the largest economic impact of reducing emissions will fall on the transportation and oil and gas sectors.”

The report also notes that the Government’s most recent announcement in April to further reduce emissions by another 30 to 66 Mt by 2030 will require further action. The Government has not yet announced policy measures to achieve this additional reduction in emissions.