If there were any doubt that an NDP government would bring a different approach to energy policy than what we’ve seen under Prime Minister Stephen Harper’s Conservative government, those doubts were laid to rest on Tuesday in a speech Thomas Mulcair gave to the Economic Club of Canada. The speech included no fewer than seven significant policy positions, not all of them new. These positions are a combination of Mr. Mulcair’s historic strengths and some red meat for the NDP base. There’s nowhere near enough detail provided to evaluate any of these policies, so hopefully we’ll see more of that in the weeks and months to come, but kudos to Mr. Mulcair for putting the first bits on the table.
1. Cap-and-trade carbon
The first major policy statement comes in two parts. Mr. Mulcair states that an NDP government will, “rise to meet our international climate change obligations by creating a cap-and-trade system that puts a clear market price on carbon.” By our international obligations, we have to assume that he’s referring to the Harper government’s Copenhagen commitment to reduce our emissions to levels 17% below where they were in 2005 by the year 2020. A recent report from Environment Canada showed that, with current federal and provincial policies in place, our emissions are expected to be less than 1% below our 2005 levels by 2020. If we don’t do something, and fast, we’ll miss our target by about 3 times today’s emissions from the oil sands.
If my reading is correct, a policy to meet the Copenhagen targets agreed to by Prime Minister Harper would be a step back for the NDP. In their 2011 election platform, the NDP had committed to re-instate the Climate Change Accountability Act (C-311) which called for emissions reductions to 25% below 1990 levels (35% below 2005 levels) by 2020. Still, a commitment to a cap-and-trade policy to meet the Copenhagen commitments would represent one of the most stringent GHG policy commitments worldwide. Assuming the policy would cover most emissions in the economy, a cap that tight would almost certainly lead to market prices for emissions above $100/t. For reference, a GHG cost in that range would impose a cost for the emissions generated from burning gasoline of about 25 cents per litre, and would increase oil sands production costs by $5-10 per barrel depending on the facility.
Let’s be clear – if Canada is to meet its commitments, we need policies which impose these types of costs on industry or on consumers, either through regulations, taxes, or a requirement to possess scarce permits for emissions. Most economists would advocate for the carbon pricing approach embodied in carbon taxes or cap-and-trade, as proposed by the NDP, because these policies allow the market to work to find the cheapest ways to reduce emissions. Regulatory approaches rely on government bureaucrats to determine where emissions are best allowed to occur and through which technology, and so tend to be less cost-effective (although more stringent regulations may be more politically palatable than high taxes or high-priced cap-and-trade). The NDP are clearly betting that Canadians do want stringent GHG policy – I guess we’ll see if they’ll vote for it.
This proposal would be major economic policy (I’ve previously compared similar policies to the scale of the GST or NAFTA), so we need more details. Here are the key questions to which I’d like to see clear answers:
- What would the cap be (i.e. how many permits would be issued in each year from 2016-2020)?
- Who would require permits and for what emissions (e.g. would refiners be required to hold permits for emissions from refining and from eventual combustion or just for emissions from their own processes) ?
- How would permits be issued? Would all be auctioned or would some be allocated to firms? If some would be allocated, on what basis?
- Would additional permits be made available if prices rose to high? If so, what would the limit price be?
Mr. Mulcair would be best to have these questions clarified well before the 2015 campaign – it will be important for him to have a clear mandate from Canadians if he gets to keep his promise that, “one of my first official acts as Prime Minister will be to attend the international climate conference in Paris in December 2015.”
The second part of the GHG policy proposal is that the NDP promises to “use the revenue generated by that cap-and-trade system to…invest in renewable energy projects in the regions where that revenue is generated.” The regional line is a clear nod to Western Canada, where the potential for large wealth transfers to occur under the guise of cap-and-trade is a real threat. How would an NDP government invest in renewables? Would they do so through subsidy programs like the now-retired ecoEnergy for Renewable Power program? That would make a hat-trick, as the policy has already been enacted by the Chretien-Martin Liberals, only to be cancelled and then re-enacted under a different name by the Harper Conservatives.
2. Resolve First Nations land claims
The second policy commitment, if you could call it that, was that “a New Democratic government will make it a priority to resolve land claims and treaty disputes once and for all.” The words could just as easily have been spoken by former Conservative cabinet Minister Jim Prentice who called out the Conservative government for unresolved First Nations land claims and failure to adequately consult on energy development. Whichever party is elected in 2015, there is near-certainty that consultation (and likely conflict) with First Nations over energy development on the east and west coasts will be high on the priorities list.
3. Refine more resources in Canada
The third policy commitment was related to the so-called value-added issue – “New Democrats will work with the provinces to upgrade and refine our raw resources here in Canada. Whether it’s raw logs or raw bitumen.” Here again, we need to know how. There are likely three things an NDP government could do to encourage more refining and upgrading: preferential tax treatment (although given that they talk about removing those subsidies below, that’s hard to imagine), trade restrictions on bitumen (which would certainly run afoul of NAFTA provisions which the NDP has previously promised to re-negotiate), or direct involvement in the refining sector (an experiment which is currently becoming more expensive by the day in Alberta). Perhaps, in this case, Mr Mulcair would be well-served to look at the model of Norway, which he describes in his speech as having “leveraged its resources to create value-added jobs today.” One thing Norway has certainly not done is encouraged domestic refining. Norway produces about 1.8 million barrels per day of crude oil, but has refining capacity of only 300,000 barrels per day – a little more than enough to serve its domestic consumption. Canada has 1.9 million barrels per day of refining capacity, while producing about 3 million barrels per day of crude. Granted, we consume more as well – about 2.2 million barrels per day.
4. Clarify foreign investment rules…somehow
Fourth, we see the NDP attack the Conservatives on foreign investment (yes, this is an odd thing to type), saying that “global investors have been left bewildered by the Conservative approach.” No kidding. The Calgary Herald‘s Deborah Yedlin described the impact of the opaque net benefit test as ” the great sucking sound of capital flying out of Canada’s oilpatch.” The NDP would “enshrine in law a coherent and strategic vision that creates the right climate for foreign investment—including a well-defined ‘net-benefit’ to Canadians.” Of course, this means nothing if we don’t know what the NDP defines as the right climate or how they would define net benefits of foreign investment to Canadians. This, after all, is the NDP leader who described the Nexen-CNOOC deal as having sold out Canadians. So tell us, Mr. Mulcair: how would you measure benefit and make sure that the headlines read, “Canadians fleece foreign investors,” under an NDP government?
5. Reintroduce tax breaks for energy-efficient home renovations
Fifth, the NDP would bring back the mechanisms in the much-loved but largely ineffective ecoENERGY Home Retrofit Program which financed home energy improvements. The NDP cites the advantage of this program as having “created more than 15,000 jobs while helping Canadians reduce their energy consumption, improve their home’s efficiency and lower their energy bills.” Unfortunately, NRCan’s own analysis found that a significant share (about 25%) of the funded retrofits would have happened without any government funding (see NRTEE PDF here) and that over 25% of households saw no net reduction in energy use as a result of the retrofits. So, how would the NDP improve this program? In their 2010 platform, the NDP had suggested making the program available only for retrofits on low income housing. That would certainly be an improvement. Let’s hear the rest of the details.
6. Shift tax breaks to renewable energy
Next, another oldie from the New Democrats – a pledge to “redirect a billion dollars a year in fossil fuel subsidies, and re-invest that money in clean energy.” The billion dollar number is a climb-down from the $2.5 billion per year figure cited by Jack Layton in the last campaign, and is likely sourced from an IISD report which quantified federal tax expenditures in the oil and gas sector. It’s important to remember that removing these deductions would not translate directly into more government revenue unless the deductions themselves are having no impact on spending and investment behaviour. Expenses not claimed through these preferential treatments would also not necessarily become taxable income, but I’ll leave that to the tax experts.
7. Make environmental assessments more independent…sort of
Last, but certainly not least, the quote most quickly conflicted by Mr. Mulcair’s own scrum. In his speech, Mr. Mulcair said that the NDP would “take arbitrary powers out of the hands of cabinet by establishing a thorough, credible and efficient system of environmental assessments.” However, in the scrum which followed the speech, Bruce Cheadle of the Canadian Press quotes Mr. Mulcair as saying that “what you can do, though, is just simply decide that some things — like the Northern Gateway pipeline would be a good example — are non-starters.” So, on this file, both the Conservatives and the NDP seem to value arbitrary powers in the hands of cabinet: the Conservatives changed the rules so that projects rejected by the National Energy Board could be approved by cabinet and Mr. Mulcair would change the rules so that cabinet could decide never to hear from the National Energy Board in the first place. Mr. Mulcair says that an NDP government, “would have never sent something like (Keystone XL) to the NEB.”
So, what are the takeaways? First, Mr. Mulcair and the NDP are clearly serious about redefining energy policy in this country. Second, on energy policy, there really is no left and right any more – it’s us versus them or, in some cases, our proposal which used to be their proposal vs. their proposal which used to be ours. Third, both party leaders are loathe to move key energy infrastructure decisions outside of cabinet. Finally, there’s a long road to 2015, but with Justin Trudeau’s speech last month in Calgary and this one from Mr. Mulcair, it’s clear energy will be a key issue on that road. I couldn’t be happier – it’s a discussion we need to have.