Federal government about to release its proposals for promised national carbon pricing system as California debates radical changes to its cap-and-trade program

In advance of a consultation paper by the federal government, expected to be released in the week of May 15, the Pembina Institute released a Backgrounder report , Putting a price on carbon pollution across Canada . The Pembina report  outlines the current federal and provincial carbon pricing policies in Canada, and makes recommendations for the national benchmark plan promised by 2018. Recommendations  include that any benchmark should at least  provide guidance on treatment of Export Import Trade Exposed sectors and be designed to minimize carbon leakage and competitiveness impacts; and stipulate that cap-and-trade systems must have a cap decline rate in line with a 30% reduction below 2005 levels by 2030. Pembina places emphasis on the need for a 2020 carbon pricing review, as well as frequent carbon pricing and climate policy reviews to ensure that Canada meets its obligations under the Paris Agreement.

A briefer paper on carbon pricing, also released in May, also summarizes the existing provincial carbon pricing plans – but from a right-wing point of view. From the Fraser Institute:   Poor Implementation undermines Carbon Tax efficiency in Canada  .

Also on the topic of carbon pricing, Pembina posted a blog  on May 11 “Time for Premier Brad Wall to focus on carbon price implementation” , in which Nathalie Chalifour, a Professor of Law at University of Ottawa, explains her opinion that the federal government is within its constitutional authority to impose a carbon pricing mechanism on the provinces, despite Saskatchewan Premier Brad Wall`s recently stated opinion to the contrary.

Meanwhile, as reported in the National Observer (May 4) , “California tables new cap-and-trade plan that jumps ahead of Quebec and Ontario” . Quebec and California  have a linked carbon credit market that expires at the end of 2020, and Ontario`s cap and trade plan is schedule to link to the California−Quebec system in 2018.  Continued partnership with California  will demand that those provinces raise their minimum price per tonne of carbon and abolish offsets, among other changes outlined in the  bill currently before the California state Senate . For a full discussion of the proposed legislation, read “California is about to revolutionize climate policy … again” (May 3) in Vox.  Author David Roberts states: ” The changes that SB 775 proposes for the state’s carbon trading program are dramatic — and, to my eyes, amazingly thoughtful. I know some environmental groups have reservations (on which more later), but in my opinion, if it passes in anything close to its current form, it will represent the most important advance in carbon-pricing policy in the US in a decade. Maybe ever.”

Cap-and-Trade proposals for Nova Scotia – and beyond?

A discussion paper released in early March by the government of Nova Scotia proposes the structure of a cap-and-trade system for the province, as required by the Pan-Canadian Framework on Clean Growth and Climate Change .  Nova Scotia is a reluctant participant in the national carbon pricing regime of the Framework, having walked out of one of the federal-provincial meetings on the topic in October 2016.

The Discussion paper, Nova Scotia Cap and Trade Program Design Options , proposes a plan which covers only those sectors required by the Framework, and grants free allocations to them, including Nova Scotia Power and the suppliers of fossil fuel. Sectors not included represent about 10% of emissions, and would be allowed to sell offsets into the system.  Fugitive emissions will not be included.  As stated in the Discussion paper, the system will not align itself with any other provinces. Yet, days after the release, and in apparent contradiction to the Discussion paper, the CBC reported that the Premier is still in discussion with the provinces of New Brunswick and Prince Edward Island about a regional system : see “Welcome to join: Atlantic cap and trade system explored” .

An excellent summary of the features and failings of the plan appears in a post from the  Environmental Law blog from Dalhousie University.  It states that the proposed plan    seems designed to meet the minimum GHG emission reductions obligations under the Pan-Canadian Framework, while also minimizing any impact on Nova Scotia’s economy. “We are clearly far from getting our C&T system right. To do so, would take time, careful analysis and a public dialogue on priorities and values rather than starting assumptions that all we care about is trying to preserve the status quo for as long as we can.” Unfortunately, the deadline for public submissions was March 31, less than a month after the release.

Political Manipulation Could Derail Nova Scotia’s Cap and Trade System”  in the Halifax Examiner is also highly critical. Author Brendan Haley decries the lack of time and opportunity for public input, and states that political expediency seems to be motivating the design of the carbon pricing system .  The Ecology Action Centre also has concerns over the proposed system   – their position paper is here .





Health Impacts of Cap and Trade policies on California’s disadvantaged communities

Acting on a December 2016 Executive Order of Governor Gerry Brown, the California Office of Environmental Health Hazard Assessment released the first in a series of reports which will examine the impact of the state’s climate change programs on communities designated as “disadvantaged”.  The February report,  Tracking and Evaluation of Benefits and Impacts of Greenhouse Gas Limits in Disadvantaged Communities: Initial Report   measuring the effects of  the Air Resources Board’s Cap-and-Trade Program, which regulates greenhouse gas emissions from industrial facilities and other sources.  The report is largely based on 2014 emissions data, and warns that “limited data does not yet allow for comprehensive analysis of the impacts of Cap-and-Trade on disadvantaged communities”.   Initial findings however, are that  major industrial facilities are disproportionately located in disadvantaged communities;  there is a moderate correlation between GHG and other air pollutants, with refineries showing the strongest correlation.   California maintains  a planning and enforcement tool,  CalEnviroScreen, the “ first comprehensive, statewide environmental health screening tool” in the U.S.  In late January, California Air Resources Board   announced the appointment of its first Assistant Executive Officer for Environmental Justice, with a mandate to ensure that environmental justice and tribal concerns are considered in air pollution policy-making and decision- making.

California reaffirms commitment to Cap-and-Trade policies, based on economic evidence

California’s climate leadership position in the U.S.  was solidified on January 20, 2017 – coincidentally Inauguration Day in Washington-  when the California Air Resources Board released its 2017 Scoping Plan Update: The Proposed Plan for Achieving California’s 2030 Greenhouse Gas Target . Proposals include a target to reduce greenhouse gas emissions by 40 percent below 1990 levels by 2030 – the most ambitious target in North America, according to a Reuters report  .  The plan also extends the cap-and-trade program to 2030, based on economic modelling  which concludes that cap-and-trade is the lowest cost, most efficient policy approach and provides certainty that the state will meet the 2030 emissions goals even if other measures fall short.  The Scoping Plan also call for an 18 percent reduction in the carbon intensity of transportation fuels burned in the state, and for 4.2 million zero-emission vehicles on the road.  The proposals, a hearings schedule, and technical appendices are all available at the ARB website .

Another  economic analysis evaluating cap-and-trade was published in January by Next10.    The Economic Impacts of California’s Major Climate Programs On The San Joaquin Valley ,  analyses the  costs and benefits, including job gain and loss, of three pro­grams: Cap- and- trade, the Renewables Portfolio Stan­dard,  and energy efficiency programs, specific to the to the San Joaquin Valley economy. The authors chose to examine the San Joaquin  as a “a bellwether of the state’s transition to a low-carbon economy” since its geography and dependence on agriculture  make it vulnerable to climate change effects , and vulnerable also  to climate policies because “it faces more socioeconomic chal­lenges than the state as a whole”.    After examining the data and using advanced modeling software, they found that the three programs brought over $13 billion in economic benefits to the Valley, mostly in renewable energy, and created over 31,000 jobs just in the renewable energy sector alone.  Research and analysis was done by academics at  the Center for Law, Energy and the Environment (CLEE) at UC Berkeley Law and UC Berkeley’s Donald Vial Center on Employment in the Green Economy .

Carbon pricing in Canada: Recent research, and implementation in Alberta and Ontario

Research about carbon pricing continues in the effort to implement the Pan-Canadian Framework.   In November,  Carbon Pricing and Intergovernmental Relations in Canada was released by the Institute for Research on Public Policy,  evaluating  the federal government’s national carbon pricing plan to that point (i.e. before the announcement of the Pan-Canadian Framework ), with an emphasis on the flexibility required for provincial differences. It then discusses the intergovernmental coordination in other policy fields in Canada ( income taxes, goods and services taxes, and environmental standards) as a possible model for carbon pricing.

As part of the Pan-Canadian Framework in December , the comprehensive  Final Report of the Working Group on Carbon Pricing Mechanisms  was released, providing an overview of Canadian and international practice, as well as a discussion of principles for design and implementation.

Finally, a report about British Columbia, the home of Canada’s first carbon tax. A  December report modelled the impact of the 2016 provincial Climate Leadership Plan and a federal carbon price on GHG emissions. It concludes that even  if all provincial policies were implemented,  B.C.’s emissions will exceed the targets for 2020 and for 2050. The report provides a breakdown of emissions by sector and forecasts that the largest single source of emissions in 2050 will be from shale gas operations and liquefied natural gas projects.  Modelling the Impact of the Climate Leadership Plan and Federal Carbon Price on British Columbia’s Greenhouse Gas Emissions  was commissioned by Clean Energy Canada,  the Pacific Institute for Climate Solutions and the Pembina Institute, with analysis by Navius Research.

In the meantime, two provinces have moved ahead with previously announced policies. Alberta’s carbon levy came into effect on January 1, 2017, cushioned by the government press release of  December 31  titled  “Carbon levy supports diverse, green economy and jobs”  which summarized the details. The levy will be charged on transportation and heating fuels  – diesel, gasoline, natural gas and propane – at a rate of $20 per tonne, increasing to  $30 per tonne in 2018.  As further explained on a government website  , farmers and First Nations are generally exempt; a 33 per cent small business tax rate cut will help offset costs for small businesses, and the direct and indirect costs to consumers  are estimated. Rebates started flowing for a majority of Alberta households on January 5, with a payment  of $200 per year for a single adult earning up to $47,500 per year , and $300 for a couple earning up to $95,000 per year.   In addition to the government explanation, see “What you need to know about Alberta’s Carbon Levy”   from the Pembina Institute ,  or a CBC  interview with Andrew Leach , generally considered the architect of Alberta’s climate plan . “The Cost of Carbon Pricing in Alberta and Ontario”, by professors Trevor Tombe and Nic Rivers, appeared in Maclean’s magazine (Jan. 4). It explains the differences in the two approaches and explains the methodology for their estimate that  “Overall, for the average Alberta and Ontario household in 2017, direct costs will likely be on the order of $150 to $200 annually and indirect costs will add an additional $80 to $100 or so.”  The conclusion:  “heated political rhetoric that suggests carbon pricing will lead to skyrocketing price increases throughout the economy is misplaced at best and misleading at worst.”

Media rhetoric seems to have been directed at Alberta, rather than Ontario, where the cap and trade system, a cornerstone of the Climate Action Plan , also took effect on January 1, 2017.  The government’s Explainer is here , and estimates that “it will cost the average Ontario household about $13 more per month to fuel a car and heat a home in 2017”.  The government also estimates  proceeds of $1.9 billion per year , which must be re-invested to reduce GHG emissions, such as social housing retrofits, public  transit, and electric vehicle incentives.  See details of the related Green Investment Fund here.  The 2016 Annual Greenhouse Gas Progress Report  (November 2016) of Ontario’s Commissioner of the Environment  offers an explanation of how the system works, and discusses pitfalls, solutions, the need for transparency, and the likelihood that the system will deliver the scale of GHG reductions promised.