Canada’s dual-pronged carbon pricing system generates revenue through a fuel charge applied to consumers and a pricing system for large industrial emitters.
According to the most recent Statistics Canada data, the federal government collected $24 billion for energy taxes in 2021, which included $6.1 billion from the carbon tax and $1.7 billion from industrial emission trading permits. The Canadian Federation of Independent Business projected around $8.2 billion in federal carbon tax revenue in the fiscal year 2022 to 2023.
Conservative Party leader Pierre Poilievre continues to hold a lead over Liberal and NDP opponents. While he has been vocal about eliminating the carbon tax, the Conservative Party has yet to release its plan to address climate change or the current carbon pricing regime for larger emitters.
If it’s any indicator, Alberta Conservatives Jason Kenney and Danielle Smith both ran on an “Axe the Tax” platform yet bolstered the industrial carbon price in Alberta.
Redistribution
About 90% of the consumer tax funds are redistributed to individuals and families with the remaining tranche allocated to farmers, Indigenous groups and businesses to offset cleaner technology adoption costs.
Under the predominantly provincially-administered large emitter carbon pricing structure, known as the Output-Based Pricing System (OBPS), organizations like mining companies pay a carbon tax based on the difference between their allowable and reported emissions. The allowable threshold varies provincially from greater than 10,000 tonnes to 50,000 tonnes of CO2 equivalent per year.
“To qualify for the large industrial facility side of that equation, you have to have emissions over a certain amount per year,” says Tom Darling, a partner and senior vice president at KPMG specializing in third-party verification of Greenhouse Gas (GHG) Emissions. He says that number varies on a provincial level from greater than 10,000 tons to 50,000 tons of CO2 equivalent per year.
According to figures from Environment and Climate Change Canada, as of July 2024, the OBPS program collected an estimated $32.3 million in Manitoba, $25.9 million in New Brunswick, $312.8 million in Ontario, and $540 million in Manitoba.
Liberal leadership hopeful Mark Carney’s strategy includes improving the OBPS by working with provincial and territorial governments to avoid credit oversupply and increase transparency between systems. His campaign has also announced plans to extend the OBPS framework from 2030 to 2035 to provide additional policy certainty.
Policy evolution
McHardy says both from a federal and provincial level across the political spectrum, there are conversations around the continued evolution of carbon policy.
“They’re looking at some of the economic pressures that we’re facing within the country and how to align carbon policy as part of actually preserving economic value and growth within this country.”
Despite some implementation pains, many industry stakeholders have shown support for the industrial emitters side of the carbon pricing scheme. The Mining Association of Canada has mostly been a proponent since 2016, a stance helped by provisions set up to reduce the burden on energy-intensive trade-exposed industries.
Benjamin Cox, an expert on mining and exploration business economics at UBC’s Bradshaw Research Institute for Minerals and Mining (BRIMM), says aside from coal, the mining industry is a massive net beneficiary of carbon pricing schemes.
“It doesn’t just minorly win, it wins to a degree that you can’t humanly imagine,” Cox says.
He argues that if there’s effective carbon mitigation globally, the demand for copper – a key mineral in the energy transition – will skyrocket.
In a 2022 paper published in Nature, Cox and his co-authors financially modelled the effects of a global carbon tax on the mining industry. They found the relatively low costs of mining carbon taxation combined with an increased demand for the metals required to produce decarbonization technologies for companies looking to reduce their emissions and avoid taxation creates a positive environment for mining companies.
Cost-benefit
He argues that the cost of carbon taxation to the industry is overplayed when considering the benefits.
“The moment you pull steelmaking and aluminum refining out of the mining industry, we’re less than 1% of global carbon emissions,” says Cox. “The whole copper industry is less than 100 million tonnes of carbon per year globally…that’s a forest fire.”
In its current iteration, the OBPS is set up to drive industrial decarbonization without forcing companies to relocate. As KPMG’s McHardy pointed out, there’s a delicate balance between reducing emissions and supporting economic growth.
Over-taxation could feed uncertainty and force regional inequalities across Canada. It could also lead to ‘carbon leakage’ for the mining sector, where investments move to jurisdictions with lower carbon pricing and environmental standards.
McHardy says the conversation in the mining industry surrounding the carbon tax is forward-looking. They just need some clarity and forward-looking statements from the political frontrunners.
“[They’re trying] to understand the opportunity that reducing or managing their carbon emissions can play in achieving those growth and resilience objectives.”
