How does the carbon tax work for industries?

The carbon tax for industries is a price on greenhouse gas emissions imposed by the federal government.  Its objective is to involve industries in decarbonization efforts by stimulating innovation.

While the carbon tax for individuals has become a polarizing subject, the one for industries could play a more significant role in reducing GHGs.  The Canada Climate Institute anticipates that industries carbon pricing systems will be the main driver of emissions reductions by 2030.  The basic principle of the carbon tax is to make industries pay for emissions that exceed a ceiling set in accordance with their production. A price of minimum $80 per tonne has been set by the government in 2024 and this rate will be increased over time.  Conversely, if a company produces less carbon than the established threshold, they will benefit from a financial incentive in credits form.  The particularly efficient businesses might even leverage their credits by selling them to other businesses.  These carbon pricing systems can be extremely effective and cost-effective as an emissions reduction mechanism for industries and their design also helps support the international competitiveness of the latter.  However, there is a major challenge in the current Canadian conditions, since each province can establish its own pricing system, making comparisons can become much more complex.   Indeed, the system effectiveness depends on the evolution of the ceilings, which must be lowered gradually to guarantee an emissions reduction.  If the caps are too high, too many credits could circulate on the market, limiting the company’s interest of reducing their emissions and conversely, if the cap is too low and the price of carbon too high, companies could lose competitiveness vis-à-vis foreign countries.

For the moment, industries seem generally favorable to this approach, but they obviously require more certainty.  It is for this reason that Environment and Climate Change Canada is currently in place, as a safety net, to ensure that carbon pricing systems operate effectively for the 2023 to 2026 period. The federal government will also carry out an interim assessment of provincial and territorial systems in 2026. Let’s hope that everything will be in place so that Canadian industries have the advantage of supporting us in achieving our carbon emissions objectives, since they play a very important role.

Source : Radio Canada : Camille Vernet

Photo : Getty images/Alexander Hassenstein