As we recently reported, British Columbia’s (BC) Climate Leadership Team prepared a report setting out 32 recommendations for BC’s climate policy path forward.  Recommendation 29 states that: If the majority of Canadian provinces opt for carbon pricing via emissions trading to cover greenhouse gases from large final emitters, a review should be undertaken of mechanisms to integrate a carbon tax with a cap and trade framework for the BC context.

According to the World Bank, approximately 40 national and 20 sub-national jurisdictions have put a price on carbon dioxide (CO2) using carbon taxes or cap-and-trade schemes – or a combination of both. The World Bank estimates that as of April 1, 2015, the value of global emissions trading systems was approximately US $34 billion, while carbon taxes were valued at about US $14 billion.

While there appears to be a growing consensus on the need to price carbon, there is no consensus on the most effective means of doing so – either via taxes or trading schemes – and the debate continues. BC was an early adopter of a carbon tax which currently stands at $30 per tonne of CO2 equivalent.  However with Ontario’s announcement that it will implement a cap-and-trade system, the launch of an emissions trading system in South Korea and the planned cap-and-trade system in China, it appears that emissions trading is emerging as the carbon pricing tool of choice. As a result, BC may eventually consider a hybrid carbon pricing system that segments the market between industrial activities and commercial transportation (63.4% of BC’s emissions) and the rest of the economy (31.7% of emissions). In a hybrid system world, the former would likely be included in some form of cap-and-trade scheme; and the latter would continue to pay the carbon tax. The policy challenges of such a hybrid system are discussed in a recent paper co-authored with the Business Council of British Columbia entitled Carbon Pricing, Fusion Style – Policy Issues to Consider When Carbon Taxes Meet Cap-and-Trade.