National Carbon Price in Canada: give private industry entrepreneurs the clarity they crave [Sep 2016]

With the Trudeau government already struggling to keep up with its numerous promises, many environmentalists will follow the Green Party’s Elizabeth May and decry the Liberal government’s embrace of Harper’s weak and cynical carbon emissions targets.

Quite incompatible with the 1.5 or 2 degree warming targets from the Paris agreement, and seemingly oblivious to the daily barrage of news about how quickly climate changes are happening here and now, and already costing us billions of dollars today, the announcement from Environment Minister McKenna last week was that Canada will leave its 2030 target at about 10% below our 1990 level.

Instead, Ottawa will impose a national floor to the carbon price, meaning provinces can, but must, choose to impose a tax or cap and trade system, each keeping its own revenues for itself.

In fact, the government had no choice but to embrace a price, rather than an emissions cap. With Quebec and soon Ontario bound to an international cap and trade agreement with California, neither province has the autonomy any more to regulate the quantity of emissions from within its borders. Instead, there is certainty only in the combined emissions across all regions in the agreement. Moreover, because California is cheaply reducing its reliance on natural gas, Quebec is likely for the foreseeable future to emit correspondingly more than its own announced targets. Likewise, Canada can no longer aim to cap its national emissions.

This arrangement, it turns out, is the best one for the economy and for the climate.

Basic environmental economics tells us we need price certainty in the short term and certainty about the quantity of emissions cuts only later, in the long term. The right policy now is therefore a rising carbon tax or other rising price floor.

However, Trudeau’s policy will only be as good as the clarity of price increases that are laid out initially. Current prices in Canada, from about 17$ in Quebec to 30$ per tonne in B.C., are still only symbolic. Equivalent to 7 cents per litre on gas, B.C.’s tax is smaller than the fluctuations you’ll see at the pump between last week and next week.

Price certainty in a national price floor means a predictable schedule of rising prices over time.

By mid-century, the price on carbon will be $100-$300. The sooner we start on a predictable ramp to get there, the more that entrenched capital will embrace what should be decades of boom time towards a golden age of a renewable, reliable, and inexpensive energy system.

While Saskatchewan Premier Brad Wall rails against any tax targeting the energy sector more than others, the energy sector is no longer synonymous with oil. Without subsidies or distortions, solar and wind have already become competitive with gas and coal, but their prices are still dropping fast. Traditional energy giants are investing their capital where future profits are to be made, and a lack of clarity about future prices only holds them back.

Meanwhile, BC’s previous government, which brought in their revenue-neutral carbon tax, was then an innovator and leader in climate policy. But with Victoria having stalled that tax at a still mostly-symbolic level of $30/tonne, while turning on the taps for natural gas and coal extraction, the province’s legacy is now worse than if it had never imposed a tax. This is because for businesses in other jurisdictions BC now provides a precedent of governments rolling back the wedge between fossil and clean energy.

Canada’s renewable energy potential, compared with current demand

Canada has more than enough renewable energy potential to meet all its energy needs. So does, individually, each province, with the possible exceptions of Alberta and Ontario, which can easily share with neighbours. Canada’s premiers have the opportunity to get on board not only to make a uniform playing field across the country, but to give private industry entrepreneurs the clarity they crave.

Links: my 2016 Oct 3 TV interview with Catherine Murray on ‘Business Day PM’ on the Business News Network

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