What is carbon pricing?December 5, 2016Hub ArticleWith the federal government’s announcement in October of a national carbon pricing policy, many farmer conversations have turned to what a carbon tax is and how it differs from a cap-and-trade system. The government’s plan requires all provinces and territories to have a price on carbon by 2018. In Western Canada, two provinces – British Columbia and Alberta – have a carbon plan already in place. Manitoba and Saskatchewan will now have to put their own plans in place over the next 14 months. But what will these plans be, and what is carbon pricing exactly? And what’s the difference between a carbon tax and a cap-and-trade system?What is carbon pricing?Carbon pricing is any method that puts a price on carbon emissions, whether it be a direct tax or an indirect cap-and-trade system. In most cases, the price is charged for every one tonne of greenhouse gases (GHGs) emitted into the atmosphere. What’s the difference between a carbon tax and cap-and-trade?A carbon tax is a charge to an individual or business that uses carbon-based energy, such as natural gas, diesel, and gasoline. The tax is applied for every tonne of GHGs consumed. As part of the national carbon plan, starting in 2018 the Canadian government will set a $10/tonne tax for any province that does not put their own carbon pricing plan in place. This tax will then increase by $10/tonne every year until it reaches $50/tonne in 2022.A cap-and-trade system, meanwhile, is a market-based approach to controlling carbon emissions. In the provincial scenario, a legislature will set an emissions cap – a set tonnage that individual emitters must stay under. Emitting companies that are under the cap can sell their unused emissions allowance as credits. Companies and facilities that do not meet the cap must purchase these credits either from other companies, or the government. This creates a system where emitting companies can stay below the emissions cap. In a cap and trade system, emissions are reduced over time as the emissions cap is lowered at regular intervals. What carbon pricing plans do B.C. and Alberta have?British Columbia and Alberta already have carbon pricing plans in effect. Alberta has gone with a hybrid carbon tax regime. In this system, the government will price carbon directly and place a cap on emissions for specific facilities and companies, but also create a market where carbon credits will be traded. For the carbon tax, Alberta will begin pricing carbon at $20/tonne in 2017 and increase this price to $30/tonne in 2018.Large emitters must also scale back their emissions over a set schedule. If they go over their limits, they must use one or more of the following tools to get under: Make improvements at their facility to reduce emissionsPurchase creditsContribute to Alberta’s Climate Change and Emissions Fund. The Fund will be used to pay for different green initiatives.British Columbia has had a carbon tax since 2008. By law, it is revenue neutral – this means that for every increase in the carbon tax, other taxes must be lowered by a proportional amount. The B.C. carbon tax was implemented in 2008 at $10/tonne of GHGs. By 2012, the government had increased the price to $30/tonne. B.C. also exempted purple gas and purple diesel from the carbon tax, which benefits some farmers.What about Manitoba and Saskatchewan?Under the federal directive, the remaining Prairie provinces must implement a carbon pricing plan by 2018. Manitoba’s government has said that they will create a “made-in-Manitoba” plan, rather than taking on the federally-mandated pricing. The details of this plan – including whether it’s a cap-and-trade, tax, or a hybrid – have yet to be released. To date, Saskatchewan’s government has opposed the federal plan, arguing that any carbon pricing scheme would hurt the province’s economy more than any other province.What about Ontario and Quebec?Most of the rest of Canada either already has a carbon pricing plan or will have one. In 2017, Ontario will introduce a cap-and-trade system. The Ontario cap-and-trade system aims to reduce emissions by 15% of 1990 levels by the end of 2020, and reduce emissions by 37% of 1990 levels by 2030. Quebec also has a cap-and-trade system, intended to reduce GHG emissions by 37.5% of 1990 levels by 2030. The emissions cap in both provinces will decrease at regular intervals to meet provincial emissions reduction targets. For more information on the federal government's carbon pricing plan, visit the Government of Canada website here.