What the pan-Canadian climate plan gets right - Macleans.ca

What the pan-Canadian climate plan gets right

The agreement between Ottawa and all but two of the provinces is the result of negotiation and compromise—though two red flags remain

Indigenous and Northern Affairs Minister Carolyn Bennett looks on as Minister of Environment and Climate Change Catherine McKenna, right, responds to a question during a media availability at the First Ministers' Meeting in Ottawa, Friday, December 9, 2016. THE CANADIAN PRESS/Adrian Wyld


Climate policy is difficult. Effective negotiations between various governments might be even harder. So, kudos to Canada’s first ministers for making real progress on a seriously difficult issue. As of last Friday, we formally have a pan-Canadian framework on climate policy. Even better, the plan actually comes pretty close to matching the ambition of our current targets.

That formal framework—as is often the case in Canada—is the result of lots of negotiation and compromise. The plan walks a line between textbook “efficiency” and real-world “practicality.” Efficiency is essentially about minimizing the economic costs of reducing GHG emissions. These costs matter a lot—especially in a world of slow economic growth in which average living standards are barely rising. Practicality is well known to all successful politicians, as it is about building consensus. Such broad-based acceptance is essential if the policy is to endure the ebbs and flows of the political tides.

Overall, the compromise embedded within the pan-Canadian agreement appears to be worthy of the considerable efforts required to achieve it. Yet some tough questions remain, and careful implementation will be critical.

Let’s take a look at three key elements of the framework.

First, it affirms a rising carbon price across Canada. This is the biggest win for low-cost climate policy. Economists are virtually unanimous that broad-based carbon pricing is the lowest-cost way to reduce GHG emissions. A carbon price doesn’t pick specific technologies or sectors for emissions reductions. It lets emitters identify their own methods of reducing emissions—and they have a powerful incentive to find the lowest-cost approach.

MORE: Why carbon pricing is smarter than setting emissions targets

Second, the plan ensures that provinces and territories can keep the carbon revenues and recycle them as they see fit. Smart revenue recycling can generate real economic benefits, thus lowering the overall costs of the policy. There is no single “best” way, but each province and territory is free to choose its own approach. Whatever their respective choices, the plan ensures that revenues will not be taken from one province and given to others.

Third, the plan gives provinces flexibility in how they price carbon. Some provinces—such as Ontario and Quebec—have cap-and-trade systems. Others—such as British Columbia and Alberta—have carbon taxes. This flexibility is key to building pan-Canadian support for the framework, largely because it accommodates existing provincial policies.

These three elements reveal a combination of policy efficiency and practicality. The focus on carbon pricing ensures low costs; the provincial flexibility demonstrates great practicality. So far, so good.

Two red flags are nonetheless worth recognizing.

One downside with so much provincial flexibility is that we may end up with quite different carbon prices across the country, especially if Quebec and Ontario continue to have access to low-price emissions permits from California. The potential problem is that large price gaps may lead businesses to relocate their activities, playing a zero-sum game across the country. One solution is to require all provinces to allow the trade in offsets or emissions permits from outside the province; such trade would tend to align the various carbon prices. But the announced framework is silent on this possibility.

A second potential problem relates to the country’s long-term carbon price. If the minimum carbon price does not continue to rise beyond $50 per tonne in 2022, the framework risks either driving insufficient emissions reductions or relying too much on non-price (and thus high-cost) climate policies to do the lion’s share of the work. There is certainly a role for some “complementary” policies, but governments should design these carefully. They should reinforce the carbon price, filling in gaps and making it work better, rather than doing the heavy lifting. Inflexible regulations and technology-specific subsidies can significantly increase overall policy costs.

One final piece of the framework can play an important part in addressing these problems. Formal reviews in 2020 and 2022 will be opportunities to revisit provincial carbon-pricing policies. Are differences in carbon prices becoming a problem? If so, what mechanisms should be used to align the prices? At what rate should the minimum carbon price increase? Adjusting policy over time can improve performance, and a scheduled review is a practical process for doing so.

All in all, the new pan-Canadian climate framework is quite an achievement. It is an impressive—and very Canadian—combination of efficiency and practicality.

Christopher Ragan is an associate professor of economics at McGill University and is the Chair of Canada’s Ecofiscal Commission.


What the pan-Canadian climate plan gets right

  1. Ragan, as is usual in the pack of Big Oil based climate illiterates, has no background in science or engineering which would qualify him to make educated comment.

    Trudeau’s climate plan “Canada’s Mid-century Long Term Strategy” similar to its Ontario counterpart is a golden compendium, of faith based nonsense, listing nearly every artistic fairy dust based GHG reduction scam, and omitting clear science and business case based winners.

    The only engineer quoted in the Plan was LEAP’s Marc Jacobsen, a civil engineer qualified only to design windmill footings. Extensive work on climate alternatives by the Ontario Association of Profession Engineers was completely ignored by Trudeau’s chief engineer and English Major Gerald Butts – in this new Plan just as it was in implementing his Ontario Long Term Energy version that has all but destroyed the provinces economy. Marc Garneau Phd EE P.Eng is apparently not a part of cabinet consultations on climate.

    The Plan’s carbon tax adopted as a major GHG reduction tool, has been shown to have no effect on BC fuel consumption once climate effects are factored in. Experts conclude that it would take $200 a ton 4 times present proposals to make any significant difference.

    Electricity prices already too high to allow a gas to electricity heat conversion, will get much worse with an Butt’s recommended wind/solar/hydro scam requiring enormously costly environmentally destructive hydro electric and transmission facilities as well as extensive use of inefficient GHG spewing gas peaker plant backups.

    Biofuels are a major component of the Plan despite the real science peer reviewed and published in reputable journal telling us that in the short time frame to 2050 that we have to go zero GHG, biofuels contribute more than coal per unit energy to our GHG inventory.

    Canada’s Candu nuke technology costing less than just the operating cost of coal/gas generation facilities and far cheaper than new hydro, is ignored as the new faith based Trudeau government is made up of green NGO antinuclear elements.

    Terrestrial Energy’s, penny a kwh, factory produced, “thorium” nuke, brewing zero net carbon synthetic diesel at 25 cents a litre, capable of eliminating Canada’s GHG’s by 2030 at no net cost, has so far not a word or nickel of support from the dimwit Trudeau with neither the word nuclear nor Terrestrial ever having passed his lips despite American support and an excellent chance at $trillion’s in annual industrial benefit.

    It has the US DOE looking to send $1.2B in cash its way.
    Google “terrestrial-energy-applying-for-800m-to.html”

    One thing the Plan has right – it’s likely there will be a massive switch from fossil to driverless EV’s as the advantages of the driverless technology overwhelms resistance to change. Unfortunately the rapidly growing energy cost under the Plan is going to hang a large millstone around the neck of progress.

  2. Not even a nod to the potential economic losses to the US? Wouldn’t that be a “red flag”?

  3. What the pan-Canadian climate plan gets right? Answer: not much. What this debate mainly reveals is how ill-equipped Canadian politicians are to deal with the issues at hand. Bill Gates says ‘‘We Need an Energy Miracle’ – don’t look for that here! Carbon pricing is at best a minor tool that possibly satisfies those that would abdicate policy making to supposed market forces. The default Canadian solution, a carbon tax, is a sham equivalent (once again Canadian politicians would sell us dog food as steak). Canadian politicians are obsessed with the potential cost based on business-as-usual scenarios, completely overlooking the opportunities; meanwhile, entrepreneurs like Bill Gates are investing heavily in the future.
    The first nonsense is the obsession with cost typically estimated based on projections of continuously increasing GHG emissions, i.e. a business as usual scenario, and typically based on a carbon tax (the pretend version of carbon trading). The assertion is that this tax would be a cost to the economy and (surprise) the general public, leaving one to wonder if that isn’t the effect of all taxation; of course, the contrary spin is that government spending benefits the economy.
    Second, taxation and credit trading should not be confused, although our politicians either are confused or are intentionally misleading us (again). In a tax scheme, revenues go to government where it perhaps displaces other tax revenue streams or is spent with typical government efficiency; the tax rate is set for mainly political reasons and (contrary to what the BC premier dissembles) is decoupled from market forces. Carbon trading prices carbon based on market forces and transfers money from GHG emitters to competitors with low GHG alternatives; politicians are limited to deciding what quantity of GHG emissions must be reduced thereby determining the number of credits in the market.
    The supposedly ‘national’ default is a provincial tax scheme with the rate, similar to the HST, set nationally. This is an inept scheme that only a provincial politician might love. Among other things, it prevents national and international enterprises from optimally (i.e. most cost effectively) reducing their Canadian carbon footprint while equally limiting the opportunities for low carbon technologies – one might ask did they even consult private enterprise? No one mentions the accounting headache this presents: consider for example long-haul transportation and factor in the various tax credit schemes most corporations enjoy. The fact that many politicians find taxation as the most palatable solution to a problem should be no surprise.
    Many detractors, having dumbed down carbon pricing to a tax, then compute the cost to the economy based on business as usual: this is a rhetorical trick known as reductio ad absurdum. One should note that not one suggests something better or more effective.
    The premier of BC worries that carbon trading schemes create a variable market driven price and that if the market price falls, those with a fixed tax scheme could be at a disadvantage; note that she does not raise the reverse argument. It should be clear that a politician would favor a politically driven ‘price’ over a market driven price. However, the big lie is the attempt to draw a direct equivalent between taxation and market trading: in a trading scheme, GHG producers bid for credits with the option of reducing emissions to lower that cost while providers of low GHG alternatives can consume credits based on the marketability of their product; consequently, carbon credits do double duty while responding to current market conditions. One might expect that, if inter-provincial competition is a dominant force, that carbon credit prices might settle to approximately half the carbon tax rate. The BC premier’s complaint is akin to a man with a hand saw complaining about those using power tools.
    Alberta’s point of view is ‘I’m special’. Their plan, such as it is, is to increase GHG emissions contrary to the national objective. The premier’s protective cover story is a cap on tar sands emissions which actually plans to increase them by 100%, ~50 MTCO2e; tar sands emissions already exceed those of conventional oil or natural gas extraction and will soon exceed all other fossil fuel production combined. The quid pro quo, supposedly, is to convert 2/3rds of coal fired generation to natural gas i.e. reducing the current 47 MT by ~15 MT. Obviously, in order to achieve a net reduction on a national basis other provinces will have to find reductions to offset Alberta’s increase – not trivial given that Canada’s 2020 goal is a 125 MT reduction while Alberta plans a 35 MT increase.
    Saskatchewan is lost in space: their premier keeps touting coal with CCS even though their implementation of CCS has reduced emissions by less than replacement with natural gas at 2.5 times the cost of building new natural gas capacity. In spite of the premier’s touting of CCS, Saskatchewan’s costs are used by US utilities to argue against the practicality of CCS. One should not expect any intelligent contribution from Saskatchewan.
    Many of our politicians argue about the difficulty of change. Our neighbor the US provides a convenient counter-argument. Renewable power jumped 24% in just the last 9 months while coal generation dropped by 20%. Coal generation in New England dropped by 50%. California increased renewable generation from 33% to 44% of total generation in the last year. The good news is that in open electricity markets, renewables are underbidding fossil fuels and therefore capturing most of the contract market for economic reasons alone; in other words, GHG reduction goes hand-in-hand with wholesale market price reductions. The evidence from the US is that even in a disorganized and highly parochial country, rapid change is possible and, importantly, reduction of GHG correlates well with economic growth.
    Finally, it seems Canadian politicians wouldn’t recognize opportunity if it knocked them on the head. In the US, large corporations are leading the way in non-governmental action, accelerating their corporate consumption of renewable energy; the business case comprising reduced cost and future cost certainty. Also, private individuals have contributed over 1,000,000 ‘behind-the-meter’ solutions. Entrepreneurial leaders in the US are investing hugely in renewable energy – appreciating the opportunity. Bill Gates is leading a $1B investment fund aimed at profiting from renewable energy and investing another $300M in small-scale nuclear technology. Elon Musk is using over $1B to gain a foothold in the solar power business. Canada’s ‘national’ plan has no idea what private enterprise might contribute (sethdayal more or less explained why).