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EDITORIAL: Carbon Pricing Will Be a Key to Fighting Climate Change

By: David Bradley

Recently, Canada became a signatory to the Paris agreement on climate change. Signing the agreement is not the same as ratification, but that is expected to occur this fall after the federal and provincial governments reach their own accord on how to move forward on a joint, or at least coordinated basis. While an initial meeting held this past winter of first minister’s did not result in a federal-provincial agreement and there are many hurdles to cross before an agreement is reached, there is a recognition by virtually all the governments that something needs to be done.

In particular, there is widespread agreement, not only amongst governments, but also amongst many business groups and environmental advocates that carbon pricing will be a key component of any GHG-reduction strategy.

Where does CTA stand on carbon pricing? Let’s start with some first principles. At no time in its history has the trucking industry’s economic goals been as closely aligned with society’s desire to reduce the emissions from the burning of carbon fuels (GHG) in order to combat climate change. You want to reduce carbon/GHG production; you become more fuel efficient. While fuel prices have been lower over the last couple of years, fuel still represents the second largest component of carrier operating costs.

It is also an unescapable fact that trucking, which relies diesel fuel to power its fleet, has been a growing contributor to GHG emissions as it continued to increase its share of the freight market.

As indicated above, carbon pricing is being promoted as an essential measure in the fight against climate change. There are two main forms of carbon pricing: (1) A carbon tax; or (2) A cap-and-trade system. Put simply, the difference is that the amount of GHG reduction from a carbon tax is a function of the market based on the price of fuel, whereas a cap and trade system sets an actual cap on GHG emissions and a market of tradeable credits is created where those who reduce their carbon footprint can sell the credits they receive to those who are not meeting their targets. Both have their positive and negative features, depending on your point of view. The outcome of both is – either directly (carbon tax) or indirectly (cap and trade) – an increase in fuel prices. It is argued that by placing a price on carbon, consumers of fossil fuels will economize (use less) of those fuels and seek alternative, cleaner fuels. But, the devil is always in the details.

In Canada today, British Columbia has a carbon tax as does Quebec. Quebec also has a cap and trade system, which Ontario is in the process of joining. Alberta has a hybrid system. All provinces are expected to introduce some form of carbon pricing. The federal government also supports carbon pricing and there has been talk of a national carbon tax.

In a general sense, CTA supports the assertion that in a perfect world putting a price on something or some activity, by sending appropriate market signals, is the best and most efficient way of encouraging change. That’s basic economics 101. Consequently, CTA is not opposed in a conceptual sense to carbon pricing – as business people it’s hard to argue against market-based solutions. But, given the choice between a carbon tax and a cap and trade system CTA’s preference would be for a carbon tax. The mechanisms for collecting it (fuel tax) and passing it along (fuel surcharges) already exist both within the industry and government. However, I will repeat — the devil is always in the details.

From CTA’s perspective, the pricing mechanism must be properly structured – in other words it must be revenue-neutral so as to isolate the carbon impacts. It must be easily understood, transparent and efficient to administer. Carbon pricing must be coordinated on a national and international (Canada-US) basis to avoid regional competitive disparities. And, it is essential that the revenues raised plowed back into industry to accelerate the investment in solutions and industry adoption.

Governments must also do their part by removing regulatory and other barriers that don’t support or stand in the way of the industry’s efforts to become more fuel efficient. The reticence of the provincial governments (except for Quebec, Ontario and Manitoba) towards harmonizing the allowable axle weights for vehicles using low-rolling resistance wide base single tires vs less fuel efficient conventional dual tires is a glaring example.

Moreover, in introducing carbon pricing it must be recognized that Canada and the Canadian supply chain must still compete continentally and globally. Recently, the federal environment minister has indicated that she understands this and that she does not want to have fighting climate change become a threat to national unity. A number of provincial governments have also indicated that economic considerations are not lost on them.

Time will tell.

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