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Carbon Pricing is Good for Renewables

Jun 01, 2016

carbon tax worldwide

Image courtesy of www.carbonpricingleadership.org

Carbon pricing is currently a hot issue in Canada. Ontario is on its way to implementing a cap and trade system, while Alberta is preparing a carbon tax. These two new carbon-pricing regimes will join those already in place in British Columbia and Quebec, ensuring that the majority of Canadians live in a jurisdiction trying to regulate emissions. The basic premise of carbon pricing is simple: since the true cost of fossil fuels (market price plus emissions impacts) is not equal to the market price of fossil fuels, we should use legislation to fix this discrepancy. 

There are two kinds of carbon-pricing mechanisms: carbon taxing and cap and trade systems. Carbon taxes work by directly charging emitters a rate per tonne of carbon emitted. The idea is that the rate charged is equal to the external costs of carbon emission. Cap and trade, on the other hand, requires setting a fixed limit on the amount of carbon that can be emitted and issuing permits to emitters which can be traded in a carbon market. By mitigating the economic harm caused by climate change, carbon-pricing actually promotes economic efficiency, and beyond its efficiency value, helps level the playing field for renewables.

Carbon pricing is beneficial for renewables because it promotes a fair competition between fossil fuels and renewables. While the market price of renewables has always roughly equaled the true cost of renewables and programs like Ontario's Feed-in-Tariff are made transparent for Ontarians, the true cost of fossil fuels has not been fully paid in the market. For example, it's safe to say that most people don't realize that the fossil fuel industry is highly subsidized by government (ie taxpayers) and "Canada's total federal and provincial support for the petroleum industry was close to $3.6 billion in the 2013-14 fiscal year, with federal subsidies accounting for roughly one-third of that." By ensuring that the cost we pay for energy in the market is equal to the total social cost of that energy, carbon-pricing gives renewables a fair chance to compete against fossil fuels.