The hidden factor in climate policy

Given that energy generation and fossil fuel combustion account for the majority of greenhouse gas (GHG) emissions in Canada, any effort to significantly reduce emissions must target the consumption of fossil fuels. One policy option gaining support that could spur substantial emissions reductions is a carbon tax (Andersen and Ekins, 2009). A carbon tax, when applied to the energy sector, creates the incentive to both conserve energy and gradually shift away from carbon-intensive energy sources. While a comprehensive, national carbon tax is not a reality at present, the existing energy tax structure already puts an implicit price on carbon emissions through fuel taxes. The implicit carbon tax can be defined as the sum total of all non-refundable taxes (i.e. excise + Value Added Tax [VAT] + specialized taxes) levied on a particular fossil fuel, expressed in terms of the dollar equivalent per unit of carbon dioxide.