Last week, Conservative MP Kellie Leitch warned that a cap-and-trade system would raise the price of “Thanksgiving turkey and potatoes.”
Conceivably this means the Harper government was planning to increase the cost of Thanksgiving turkey and potatoes when it advocated for cap-and-trade in 2008 and 2009. But setting the past aside for a moment, this raises the question of how much the Harper government’s current regulatory approach to greenhouse gas emissions is expected to raise the price of Thanksgiving turkey and potatoes. I asked Peter Kent’s office that question last week and received the following response.
The government’s regulatory approach to the reduction of green house gas emissions is not designed to generate revenues and for the most part are not expected to raise costs on Canadians. Given the example of light duty vehicles, the increased fuel efficiency will save Canadians money over the life of their vehicle.
(As noted previously, the mention of “revenues” is a red herring.)
As CP explained last month, the costs and benefits have been estimated for the regulations announced so far. Benefits for the passenger automobile and light truck regulations, as Mr. Kent’s office notes, include “pre-tax fuel savings, reduced refuelling time, additional driving, reductions in criteria air contaminant (CAC) emissions and reductions in GHG emissions.” But there are also about $4 billion in costs, including costs that will be directly imposed on the consumer.
The proposed Regulations are anticipated to increase the cost of manufacturing passenger automobiles and light trucks. These costs are expected to be passed on directly to consumers purchasing these vehicles, and will add an additional $89 to the average purchase price of a 2011 model year vehicle, and an additional $1,195 to the average purchase price of a 2016 model year vehicle (less than 5% of the average purchase price). The benefits resulting directly from the proposed Regulations include fuel savings of approximately 28 billion litres over the lifetime of the vehicles of 2011 to 2016 model years. It is estimated that the added costs to these vehicles would be more than offset by pre-tax fuel savings with a payback period averaging less than 1.5 years.
Regulations for the coal-fired electricity sector will carry about $16.1 billion in costs. Again, those costs are expected to eventually (and gradually) be passed on to consumers.
The gradual phase-in of the Regulations defers most of the price effects to beyond 2020. This moderates the impact on consumers, and results in the share of household budget spent on electricity remaining relatively constant.
In the residential sector, the average annual change over the analytical period in residential electricity prices as a result of the performance standard is expected to have the greatest impacts in Alberta (1.61 cents per kilowatt hour [kWh]), Saskatchewan (0.74 cents/kWh), and Nova Scotia (0.76 cents/kWh). It is expected that the price increases from the Regulations will be passed on to consumers in proportion to their consumption. Households that consume more (or less) than the average would pay proportionately more (or less) of the total costs.
The Regulations will also have a similar impact on electricity prices in the industrial sector with average annual changes in electricity prices of 1.61 cents/kWh in Alberta, 0.82 cents/kWh in Saskatchewan, and 0.76 cents/kWh in Nova Scotia. These incremental price increases are not expected to have significant impacts on the industrial sector in Canada. In general, Canada has low electricity rates relative to many of its global competitors, and long-term trends continue to show that the sector is using less energy for each unit of economic output.
The Harper government still has to determine regulations for the oil and gas sector and other major emitters. Those will carry costs as well. (I’ve asked if a total estimate exists for the Harper government’s regulatory approach and will post that estimate if it is provided.)
But to properly assess cap-and-trade, it is ultimately going to be necessary to both understand how it will be implemented and compare the costs and benefits of such a system to the alternative: specifically, the costs and benefits of the Harper government’s regulatory regime. The potential emission reductions and increased costs of cap-and-trade can’t be evaluated in a vacuum, they have to be judged against the counter proposal. So to use Ms. Leitch’s paradigm, the question on this file for the next three years is this: How much is it going to cost for you to purchase Thanksgiving turkey and potatoes and by how much will greenhouse gas emissions be reduced as a result?