Carbon pricing has long been a central tool in Canada’s and the United States’ climate strategies. However, recent political shifts are changing how both nations approach this policy.
In Canada, Liberal leadership contender Chrystia Freeland has pledged to scrap the consumer carbon pricing system in favor of alternatives developed through consultations. In the U.S., President Trump’s administration has removed the social cost of carbon from regulations. This marks a big change from earlier climate policies.
These shifts highlight the ongoing debate over the role of carbon pricing in addressing climate change.
Canada’s Carbon Tax Crossroads: Freeland Proposes Policy Overhaul
Canada’s carbon pricing system was introduced in 2019 under Prime Minister Justin Trudeau’s Liberal government. The plan set a price on carbon emissions. This encourages businesses and consumers to cut back on fossil fuel use.
- The initial price was CAD 20 per ton of carbon dioxide. It increased every year, hitting CAD 80 per ton in 2024. By 2030, it is expected to reach CAD 170 per ton.
Provinces could set up their own carbon pricing systems. However, if they didn’t meet federal benchmarks, they faced the federal backstop. Some provinces, like British Columbia and Quebec, embraced carbon pricing early. But others resisted it.
Alberta, Saskatchewan, and Ontario took the federal carbon tax to court. In 2021, the Supreme Court of Canada decided it was constitutional.
However, political opposition to consumer-facing carbon pricing has intensified. Critics argue that it increases the cost of living, particularly amid inflation concerns.
For consumers, the carbon price increase means higher costs for gasoline, heating fuels, and other fossil fuel-based products. For example, gas prices are expected to rise by about 3.3 cents per liter due to the 2024 increase.
Freeland wants to replace consumer carbon pricing with other options. This change shows the current political situation.
She promised to make sure the biggest polluters keep paying. She will also look into options like carbon credit markets, better building codes, and rewards for cleaner energy.
Her leadership rival, Mark Carney, also wants to get rid of the consumer carbon tax. He says there is a lot of misinformation and division around it. The Liberal Party will select its new leader on March 9, potentially signaling a significant shift in Canada’s climate policy.
U.S. Deregulates Carbon Costs: Trump Eliminates Social Cost Metrics
The U.S. has had a fragmented approach to carbon pricing. Unlike Canada, the U.S. never adopted a nationwide carbon tax. Instead, various state-level initiatives have shaped its carbon pricing landscape.
One of the first carbon pricing systems in North America is the Regional Greenhouse Gas Initiative (RGGI). It started in 2009 and includes 10 northeastern U.S. states. This cap-and-trade system limited power sector emissions and reinvested revenue into clean energy programs.
California started its cap-and-trade program, also called the emissions trading system (ETS) in 2013. It’s one of the most detailed programs worldwide. Carbon credits under this ETS are distributed in 4 different categories as shown below.
The state increased the carbon price under its cap-and-trade program. In early 2024, the price per tonne of carbon in California rose to over $40, up from around $30 in 2023. This increase means that companies in the state must pay more for their emissions, encouraging them to reduce pollution and invest in cleaner technologies.
At the federal level, the concept of a “social cost of carbon” (SCC) was introduced under President Barack Obama. This metric placed a dollar value on the long-term economic damage caused by each ton of carbon dioxide emitted. It was used to justify regulations limiting pollution from industries and vehicles.
During President Trump’s first administration, officials slashed the SCC from around $50 per ton to as low as $7, significantly weakening the economic case for climate regulations. President Biden raised the SCC to $190 per ton. This change supports emissions reductions in federal policy.
However, President Trump’s second administration has completely removed the SCC from U.S. regulations. The “Unleashing American Energy” executive order disbanded the working group responsible for setting the SCC and directed the Environmental Protection Agency (EPA) to eliminate its use in future regulations. This move helps the fossil fuel industry, showing the administration’s plan to reduce climate policies.
Implications of Policy Changes: Navigating the Future of Emission Reductions
Freeland’s plan in Canada and Trump’s policy change in the U.S. signal a key moment for climate strategy in North America. Both decisions could reshape how businesses and consumers engage with carbon reduction efforts.
If Canada removes consumer carbon pricing, it will face strong pressure to find other ways to meet emissions reduction goals. The challenge is keeping polluters accountable without raising costs for households.
Freeland promised to offer rebates for home energy upgrades. She will also support renewable energy and work on creating a better-connected electricity grid.
Removing the SCC from federal rules in the U.S. could greatly weaken climate action. The SCC has been a key factor in justifying emissions standards for power plants, fuel economy regulations, and clean energy incentives. Without it, policymakers may struggle to enforce meaningful emissions reductions.
Moreover, shifting climate costs from industry to taxpayers could raise financial burdens on American households. This could result in higher insurance costs, more expensive disaster recovery, and rising energy bills.
What Comes Next for Climate Policy in North America?
Canada and the U.S. have historically taken different approaches to carbon pricing. Yet, recent developments show a convergence in political resistance to consumer-facing carbon costs. Freeland wants to get rid of Canada’s consumer carbon pricing. Similarly, Trump plans to eliminate the social cost of carbon. These actions show the changing discussion on how to reduce emissions.
Despite these policy changes, the need for climate action remains urgent. Both countries deal with rising climate costs. These include wildfires, hurricanes, and extreme temperatures, which hurt agriculture and infrastructure.
As both nations navigate these policy shifts, the challenge will be ensuring that climate action remains effective without placing undue financial burdens on the public. With these changes, the coming months will be crucial in determining the future direction of North America’s climate policies.
