Grant Bishop is associate director, research at the C.D. Howe Institute. He lives in Calgary.
The horse is out of the stable. Earlier this month, the federal government announced its plan for meeting Canada’s targets for greenhouse gas emissions under the Paris Agreement, the centrepiece of which is a carbon price of $170 per tonne of greenhouse gas emissions in 2030. Ottawa also announced that it will explore using border carbon adjustments to address “carbon leakage,” and will forgo a Clean Fuel Standard for gaseous fuels.
To those who are suspicious of Ottawa, this plan may feel like a jab at Canada’s beleaguered petroleum industry. And to be sure, the painful adjustments involved should not be downplayed. Based on today’s engineering, a $170-per-tonne carbon price would mean much higher costs for oil sands producers or gas-fired electricity generation. It would mean higher costs for heating homes with natural gas or buying gasoline.
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But hard as it may be to swallow for many, this plan is exactly what Canada needs.
Uncertainty around national emissions policy has long loomed as an economic threat to Canada. The plan provides our energy producers and consumers with a clear and credible path for future carbon pricing. It provides a partial remedy for mounting international concerns around Alberta’s oil sands. Global investors now see a credible projection for Canada to meet its Paris targets at this price, and investors and creditors can more confidently estimate the compliance costs facing companies and specific assets.
Technology, meanwhile, has transformed how we move, live and work, and it will continue to do so. What was impossible yesterday can become commonplace tomorrow. And innovation responds to incentives – such as a carbon price.
By announcing the trajectory for carbon pricing, Ottawa has anchored expectations. This helps companies and households make informed decisions about new investments or retrofits. Knowing the future price, companies can build business plans for transformations to reduce emissions. Engineers can propose new designs and calculate the savings these will yield.
The alternative to carbon pricing is regulating emissions from each and every activity. This runs the risk of government picking winners and losers based on political expedience or lobbying. Instead, in this climate plan, the federal government has largely chosen market forces over central planning.
This good feature nevertheless comes with important caveats.
First, the federal government should publish its greenhouse gas projections and energy-use assumptions for each sub-sector and province. A carbon price of $170 per tonne by 2030 roughly aligns with estimates by the Parliamentary Budget Office and EcoFiscal Commission for meeting Canada’s Paris targets. But Ottawa should allow us to peer under the hood and kick the tires on its modelling.
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For earlier projections, Environment and Climate Change Canada published detailed data tables. The projections that undergird Ottawa’s strategy should also be an open book, because more information helps markets work better.
Second, Ottawa did the right thing by kiboshing the Clean Fuel Standard (CFS) for gaseous fuels. Natural gas is much less carbon-intensive than liquid fuels, and an economy-wide carbon price is a better way of rationing natural gas use. The framework around carbon pricing also provides greater flexibility to offset impacts on households and trade-exposed industries that use natural gas.
Ottawa also published draft regulations for the CFS for liquids fuels last Friday. The “Liquids CFS” will create a market for reducing emissions, and specified activities (e.g., carbon capture and sequestration, substituting biofuels, or recharging electric vehicles) will generate credits. Fuel suppliers need credits to comply with prescribed reductions in the carbon intensity of a given liquid fuel (e.g., gasoline or diesel), and to work efficiently, the market will need good information. Indeed, the volatility of prices for credits under British Columbia’s Low Carbon Fuel Standard – which ranged from $33/tonne to $324/tonne during 2019 – reflects how large information gaps surround supply and demand in this market. The market for Liquids CFS credits will need much better disclosure.
Third, Ottawa must address carbon leakage. Border carbon adjustments (BCAs) involve imposing tariffs on the embedded emissions in imports and rebating carbon levies to exporters (analogous to GST rebates on exports). In this way, BCAs level the playing field between domestic and foreign producers. Ottawa’s contemplation of BCAs follows statements that the European Union and U.S. president-elect Joe Biden will pursue such measures.
Conceptually, BCAs are permissible under international trade law, but implementing BCAs is complex in practice. For example, for BCAs to comply with WTO rules, Canada would likely need to phase out the current pricing system for large emitters. As well, establishing default carbon intensities for each imported product and origin country will be data-intensive and difficult. Finally, unless Ottawa exclusively collects revenues from pricing carbon, the federal government would face fiscal and administrative challenges for rebating carbon levies to exporters.
But even though it is an imperfect work-in-progress, the federal climate plan crucially and positively clarifies how Canada plans to achieve the Paris emissions targets. Ottawa has now provided a road map for businesses and households, but the real work remains ahead.
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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
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