Solutions

Carbon pricing

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In this section, you will learn about the following topics involved in putting a price on carbon:

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There are basically two ways to put a more appropriate price on carbon: carbon tax or by implementing a cap and trade system.

Both methods generate revenue that can then be recycled to enable us to change our behaviour, technology, systems, and infrastructure so that we emit less greenhouse gases (GHG) every day.

Why price carbon?

A key reason that we burn so much fossil fuel and emit so much greenhouse gas (GHG) is because what we pay for fossil fuel does not include its true cost. Without carbon pricing, what we pay just covers the direct costs (plus some tax). But there are current and future costs that are not reflected in that “price at the pump”.

To be fair, the additional costs need to be accounted for in the cost of the fuel. These costs relate to climate change impacts like changes in agricultural productivity, human health, and property damages (e.g. increased flooding). There will also be changes in energy costs (e.g. reduced costs for heating and increased costs for air conditioning). There are also costs due to environmental impacts from fossil fuel exploration, extraction, refining, and transport. (e.g. oil spills, deforestation)

Scientists and economists have tried to put a more representative cost on carbon by modelling and estimating these costs. The US Environmental Protection Agency (EPA) and other US federal agencies use the Social Cost of Carbon (SC-CO2) to estimate the climate benefits of carbon reduction policies.

However, current modelling and data don’t include all of the important physical, ecological, and economic impacts of climate change. This is because of a lack of precise information on the nature of these damages and because the science incorporated into these models naturally lags behind the most recent research.

The following table shows the impact various carbon prices would have on the price of fossil fuels that Manitobans typically buy.

Cost per tonne CO2e Additional cost per litre gasolineAdditional cost per litre diesel fuelAdditional cost per m3 natural gas
$204.49 ¢/L5.35 ¢/L3.84 ¢/m3
$306.73 ¢/L8.03¢/L5.76 ¢/m3
$10022.5 ¢/L26.8 ¢/L19.2 ¢/m3
$20044.9 ¢/L53.5 ¢/L38.4 ¢/m3

There can be a lot of debate over what a more appropriate price should be for carbon. In 2016, many Canadian provinces and the US are considering a starting price for carbon in the neighbourhood of $20 to $30 per tonne. However, in January 2015, scientists at Stanford University presented a paper in Nature indicating a present day price of $240USD per tonne is more appropriate.

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