THE PRICE IS RIGHT
Services represent most of economic output, add little to emissions, economists say
Carbon pricing isn’t a significant threat to Canada’s GDP, says coalition of economists,
It turns out carbon pricing isn’t a nightmare on Main Street.
Sectors representing about 95 per cent of Canada’s GDP would face little competitive pressure if a B.C.style carbon price was applied in all provinces, according to a report Wednesday from some of the country’s top economists.
Ontario’s economy would feel it even less. Sectors that would take the biggest hit include steel, petrochemicals, fertilizer and refining, which together represent a quarter of the province’s emissions but just 1 per cent of GDP.
“Overall, the business community should not perceive carbon pricing as a significant economic threat,” concludes the EcoFiscal Commission, an independent coalition of Canadian economists that was created to inform policy-makers.
Carbon pricing can take many forms, including a tax applied to emissions from fossil-fuel use, such as B.C.’s $30 carbon tax, and “capand-trade” systems that let the market decide the cost of emissions that exceed government-imposed limits that can be lowered over time.
Quebec currently uses a cap-andtrade model and Ontario is expected to launch a similar system in 2017 to help meet its goal of reducing greenhouse-gas emissions to 15 per cent below 1990 levels by 2020.
Chris Ragan, commission chair and professor of economics at McGill University, said a starting point for the analysis was to identify what helps or hinders the ability of a company or industry to compete in the marketplace.
“There is a whole pile of things, including exchange rates, labour legislation, the ability to attract good workers, tax rates and energy costs,” said Ragan.
Carbon pricing adds another dimension to competitiveness, especially as it relates to cross-border trade. Everything else being equal, emissions-intensive companies in a jurisdiction with a carbon tax will be at a disadvantage to rival companies in a jurisdiction without a carbon price.
“Trade exposure matters because it is one key factor in determining whether emitters can pass their carbon costs on to their consumers in the form of higher prices,” the report notes. “If firms sell undifferentiated products and are price-takers — as is the case in many international commodities markets — they cannot pass province-specific carbon costs on to their customers.”
The commission looked at how a $30 price on carbon would affect different sectors across each province.
What it found is that roughly threequarters of GDP in every province comes from the services sector, including government services, which has little if any trade-risk exposure and is a minor contributor to Canada’s greenhouse-gas emissions.
Based on GDP contribution, the percentage of “more exposed” sectors was different across provinces, ranging from 1 per cent in Quebec to 18 per cent in Alberta and Saskatchewan, where high emissions from oil and gas production and the manufacturing of chemicals and fertilizers are no surprise. This article is part of a series produced in partnership by the Toronto Star and Tides Canada to address a range of pressing climate issues in Canada leading up to the United Nations Climate Change Conference in Paris, December 2015. Tides Canada is supporting this partnership to increase public awareness and dialogue around the impacts of climate change on Canada’s economy and communities. The Toronto Star has full editorial control and responsibility to ensure stories are rigorously edited in order to meet its editorial standards.