Thank you very much for the invitation to be here. It's an important issue.
Let me begin by saying that your cookies are outstanding, and I'm happy as a taxpayer to be supporting cookie purchases for such a good thing.
I will try to be brief in the hope that the briefer I am, the more time we'll have for questions. I'll make four quick points.
First, Canada is not a leader in climate policy, but we are actually moving forward, and that's a good thing. If you look around the world, carbon pricing is becoming more accepted, for two reasons: one, more governments are believing that climate change deserves a serious policy response, and two, more governments are realizing that carbon pricing is the best way forward for this because it is best as a policy to maintain economic prosperity. Currently, 46 jurisdictions around the world have carbon pricing, and 14% of global emissions are currently carbon-priced.
That's point number one. Here is point number two. Carbon pricing is central to Canadian policies, the new and emerging policies.
Let me begin at the provincial level.
British Columbia and Quebec have very well-designed carbon pricing systems, and they are quite differently designed carbon pricing systems: B.C. with a carbon tax and Quebec with a cap-and-trade system. Alberta also has a very well-designed carbon tax system, with some output-based allocations that I'll talk about in a second.
The proposed federal backstop is also a quite well-designed policy, I would argue, for reasons that we can talk about. I think what we will see is that carbon pricing will play a greater role in the future as the carbon price in these provinces or the federal backstop increases. It will have more centrality in terms of overall climate policy. That's point number two.
Point number three is that carbon pricing works. It works effectively to reduce greenhouse gas emissions.
We could look at British Columbia, where emissions in the first five or six years of that policy, which started in 2008, fell by between 5% and 15% relative to where they otherwise would have been in the absence of the carbon price. The U.K. has a U.K.-specific carbon tax that applies over top of a European cap-and-trade system, and we have seen emissions in the U.K. fall more steeply than in the EU, which is what you would expect. California has a well-designed cap-and-trade system that is operating to successfully reduce emissions.
I would also argue that over the longer haul, a key part of carbon pricing is that it drives innovation. In fact, I would argue that the number one way to energize the business model of the clean-tech sector isn't to use government subsidies or government support, which I think has many problems, but to put a nice, clean, predictable rising carbon price in place. That will drive innovation and support the clean-tech sector.
The fourth point is that when you design carbon pricing, there are two main challenges that you need to address. One is the impact on business competitiveness. The second is the impact on household purchasing power.
It would be naive to think that you could design a carbon price that by itself would have no impact on competitiveness and probably would not have an unfair impact on households. You can, however, design policies in a way that addresses those challenges head-on.
This is the output-based pricing element of the federal backstop—it's also basically modelled on the output-based allocations in the Alberta system—which is a way by which you can effectively give a second policy tool to the large final emitters that can give them, from the carbon price, an incentive to reduce emissions but also gives them an incentive to not shrink and not reduce their economic activity within the jurisdiction.
We can talk a bit more about that, if you like.
Household fairness is a very important issue, because carbon pricing works by raising prices. It works by raising prices based on the carbon content of the goods and services. That is going to reduce the purchasing power of households, period. However, if you return some of the revenues to the households in the form of lump sum payments—it could happen through the tax system, or it could happen through regularly issues cheques, the latter being used in Alberta, the former proposed in the new federal system—then you can in fact have your cake and eat it too. You can actually maintain the purchasing power of the households, and you can actually drive those prices as well and drive the behavioural change, and that is what this is all about.
My final comment will be that I recognize that the design of the policy to address competitiveness and the design of the policy to address that household impact is tough to explain. It's tough to explain to anybody, so I will just leave it there and hope that you ask some questions, so that I get more time to talk about those two issues.
Thank you.