Prospects for Integrated Carbon Taxes in Canada: Lessons from Federal-Provincial Tax Coordination

The global nature of the climate change externality calls for a global response but so far none has emerged. Instead, climate policies are being implemented by subnational and national governments, resulting in a fragmented policy landscape at the national level. This is certainly the case in Canada. While this outcome is not particularly surprising, from an economics perspective, it is arguably more costly, less efficient, and less effective at achieving emissions reductions than a more harmonized approach. Is this outcome the unavoidable price of Canadian federalism? Is a more harmonized carbon tax approach feasible? This paper considers Canada’s experience with three major taxes, jointly occupied by federal and provincial governments. Despite its highly decentralized structure, Canada has a history of tax harmonization and coordination arrangements for these taxes. By examining the evolution of these arrangements, the paper offers insights on the prospects of adopting a more harmonized carbon tax approach to address climate change.