The bank’s chief economist says taxing those who actually pollute creates an incentive to change behavior. The tax should be applied when pollution is created, he said. Thus, the consumer would pay for car pollution, and industry would pay for pollution associated with production.

In an emissions-trading system, companies that reach their emissions targets can sell credits to other companies who can’t seem to lower their greenhouse gas output.

Joining an international system might not appeal to Canadians at the moment, the report said, but Canada should get involved in a domestic emissions-trading scheme soon with an eye to connecting to the bigger markets later.