Thank you, Madam Chair.
Thank you to the committee for allowing me to speak today.
As mentioned, I am a professor in the department of economics at the Université du Québec à Montréal, and my comments are based on my expertise as a researcher on carbon pricing issues. I'm also a member of the Quebec government's advisory committee on climate change, and although I don't speak here on behalf of that committee, my remarks are based in part on the work done by that committee.
The federal output-based pricing system includes the challenge of giving provinces the flexibility to come up with an approach tailored to their own situation, while requiring a minimum so that no province can shirk its obligations to reduce greenhouse gas, or GHG, emissions.
The federal government's removal of its fuel charge in April 2025, in which British Columbia followed suit, has dramatically changed carbon pricing in Canada. Quebec is now the only jurisdiction with this fuel charge for consumers and small emitters. The minimum federal standards for carbon pricing stringency will therefore have to take into account the growing divergence between Quebec's approach and that of the other provinces.
For one thing, Quebec's cap and trade system applies to more than 75% of GHG emissions, while the various output-based pricing systems elsewhere in Canada apply to between 25% and 60% of emissions, depending on the province. Moreover, the cap and trade system is partnered with the State of California, and will soon be with the State of Washington as well.
These two elements require that the federal model not apply minimum prices for systems that include transportation emissions and those with international partners, such as the one in Quebec. A lower price signal on a broader emissions basis can result in as much if not more emissions reductions. In addition, the distributional impacts of higher prices on consumers are harder to mitigate, since they do not benefit from free emissions as industrial emitters do. Third, an international partnership, especially with a larger emissions player such as California, which is the fourth-largest economy in the world, means that Canada, like Quebec, does not play a leading role in determining the market price of emissions.
Instead of focusing on price, the federal model must instead focus on covering and reducing emissions. With respect to coverage, it must be noted that the lack of a price on fuel makes it more important to include small emitters. There should be a threshold of 10,000 tonnes of CO2 equivalent per year. In terms of reductions, reductions from emissions trading between partners must be accounted for, as the Government of Quebec does in a triennial report on its exchanges with California.
With respect to compliance instruments, the science is evolving rapidly on the issue of ecosystem offsets, such as tree planting. As the advisory committee on climate change noted in its November 2025 opinion, storage in ecosystems leads to temporary carbon sequestration that should not be fungible with emissions from fossil combustion. Only those approaches that lead to permanent carbon sequestration, such as deep geological storage, seabed storage or inert solid materials should be used to offset fossil fuel emissions.
As to pricing revenues, the government must give the provinces some leeway. The proposed emissions reduction account is interesting, but it must be limited in order not to dilute the price signal. In Quebec, a similar system includes between 1% and 2% of the emissions cap. A complement to this approach could be to allocate revenues to corporate tax breaks.
Finally, with regard to the rigour of the system, the federal approach could be modelled on the European Union's automatic market stabilization system. When net demand is too low, there must be an automatic adjustment of certain elements. Moreover, the impact of the credits banked so far in the various systems could be considerably reduced if an extension of the system were announced quickly, as California has done by extending its system until 2045, and as Quebec is also expected to announce this summer.
There were a number of discussions at the beginning regarding inflation and the impact on various household budgets. It is worth noting, as reported the Quebec institute study, that the impact on food is very low. In the case of Quebec, the impact of the system is just 0.1% of expenditures, or about $15 a year. The main impacts are in the transportation and the home heating sectors, where alternatives can be offered to consumers.
Thank you for your attention. I will be pleased to answer your questions.