How do they work? Carbon pricing vs. cap-and-trade

CTV National News: Climate debate turns nasty Prime Minister Justin Trudeau triggered an angry backlash after he announced plans for a national price on carbon. Glen McGregor reports.

Prime Minister Justin Trudeau announced a new nation-wide $10 per tonne carbon tax that will start in 2018 -- a price that will rise by $10 per year, topping out at $50 by 2022.

Provinces and territories will have the option of choosing between a straight tax and a cap-and-trade system to offset emissions, so long as it’s stringent enough to meet or exceed the federal benchmark.

Trudeau made the announcement on Monday as he kicks off a debate in the House of Commons over whether Canada should ratify the Paris climate change agreement.

Carbon pricing has long been a point of contention between the provinces; with resource-rich regions arguing for greater flexibility to support their energy industries, and others demanding greater recognition from Ottawa for imposing stricter rules.

Here’s a look at how carbon pricing works and what the provinces are doing.

Why put a price on carbon?

A carbon tax puts a price on the impact of emissions on Canada’s environment and economy. The policy is meant to encourage companies and households to pollute less and invest in cleaner technologies to avoid paying the tax.

Using fossil fuels becomes less affordable compared to solar and wind energy as the price of pollution rises, say from $10 per tonne to $50 per tonne.

Which provinces have a carbon tax in place?

British Columbia introduced a carbon tax on July 1, 2008 at a rate of $10 per tonne. The province increased its rate by $5 annually, reaching its current level of $30 per tonne in 2012. The policy adds an extra 6.67 cents to each litre of gasoline and 7.67 cents to each litre of diesel. In August, the province said it would stick to that price until other jurisdictions catch up.

Alberta announced it will have a $20-per-tonne carbon levy in place starting next year, rising to $30 a tonne in 2018. The tax will apply to gasoline, diesel, natural gas and propane.

What is cap-and-trade?

Under a cap-and-trade system, governments impose a strict quota, or cap, on the overall level of carbon pollution that can be generated. The cap typically decreases each year to cut down the total emissions output from industry.

Governments issue permits to companies specifying how much carbon they can burn. If a company is unable to meet its allotted target, it can buy permits from other more efficient firms.

Quebec has a functioning cap-and-trade system, and Ontario plans to launch one in 2016. Manitoba had promised to join Ontario and Quebec in introducing a cap-and-trade system. However, Premier Brian Pallister has nixed the idea, which was proposed by his predecessor Greg Selinger.