Federal government releases detailed proposals for Canada’s carbon pricing system, including output-based pricing for industrial emitters

On January 15, the Minister of Environment and Climate Change and the Minister of Finance issued a press release  announcing the full draft legislative proposals relating to the carbon pricing system. Public comment will be accepted until February 12, 2018.   The full text of  Legislative and Regulatory Proposals Relating to the Greenhouse Gas Pollution Pricing Act and Explanatory Notes are in English  and French versions . Comment on the legislative proposals will be accepted until April 9, 2018, with “structured engagement” and consultation with provinces and territories, Indigenous Peoples, environmental non-governmental organizations, industry, and business promised over the Winter/Spring of 2018.

Minister McKenna also released for comment the proposed regulatory framework for carbon pricing for large industrial facilities – an Output-based Pricing System (OBPS), with the aim “to minimize competitiveness risks for emissions-intensive, trade-exposed industrial facilities, while retaining the carbon price signal and incentive to reduce GHG emissions.   Emission sources covered by OBPS will include fuel combustion, industrial process, flaring, and some venting and fugitive sources – but notably, “Methane venting and methane fugitive emissions from oil and gas facilities will not be subject to pricing under the OBPS.”  The system will include emissions of all seven of the UNFCCC-designated greenhouse gases, “to the extent practicable” – carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride and nitrogen trifluoride. Details are  in Carbon pricing: regulatory framework for the output-based pricing system  (French version here) , and  build on the Technical Paper : Federal Carbon Pricing Backstop (French version here) , released in May 2017.

Leading up to the January release, the federal government had released clarification about the timing of  the planned backstop carbon pricing mechanism on December 20, 2017 – it  will come into effect by January 2019, bringing the carbon price to $20 per tonne in any jurisdiction that doesn’t meet the federal benchmark.  Full details are set out in:  Supplemental Benchmark GuidanceTimelines , and the Letter to Ministers . Generally positive reaction followed, from the Pembina Institute  and  Clean Energy Canada.

Initial reaction/summary of the proposed legislation released on January 15:  “Ottawa’s new carbon pricing plan will reward clean companies” from CBC,  and from the Globe and Mail, “Ottawa prepares to relax carbon-pricing measures to aid industry competitiveness” .  More substantive comment comes from the National Observer, in  “Trudeau government explains how it will make polluters pay” (Jan. 15).  Reaction from Environmental Defence came from Keith Brooks , who calls the proposed plan “an effective and fair pan-Canadian carbon pricing system.”  Reaction from  Clean Energy Canada is similar.

Meanwhile, in Alberta: Note also that the province of Alberta released their new Carbon Competitiveness Incentive Regulation (CCIR) for large industrial emitters in December 2017, also based on an output-based allocation system.  Carbon Competitiveness Incentive regulations replaced the current Specified Gas Emitters Regulation (SGER) on Jan 1, 2018, and will be phased in over 3 years.  It’s expected to cut emissions by 20 million tonnes by 2020, and 50 million tonnes by 2030.  Favourable testimonials from the oil and gas, wind energy, and cement industry are quoted in the government press release on December 6.

To explain output-based carbon pricing, the Ecofiscal Commission published Output-Based Pricing: Theory and Practice in the Canadian context , by Dave Sawyer and Seton Stiebert of EnviroEconomics in early December.  The highlights of the paper are summarized here, with a discussion of the pros and cons and challenges of implementation, with special attention to Alberta’s provisions.

Progress at COP23 as Canada’s Minister pledges to include the CLC in a new Just Transition Task Force

cop23An article in the Energy Mix reflects a widely-stated assessment of the recently concluded Conference of the Parties in Bonn: “COP23 Ends with solid progress on Paris Rules, Process to Push for Faster Climate Action” :  “It was an incremental, largely administrative conclusion for a conference that was never expected to deliver transformative results, but was still an essential step on the road to a more decisive “moment” at next year’s conference in Katowice, Poland.”  A concise summary of outcomes  was compiled by  the  International Institute for Environment and Development, including a link to the main outcome document of the COP23 meetings – the Fiji Momentum for Implementation .  Germany’s Heinrich Böll Institute also issued a checklist and assessment titled  We will not drown, we are here to fight  . The UNFCCC provides a comprehensive list of initiatives and documents in its closing press release on November 17. And from the only Canadian press outlet which attended COP23 in person, the National Observer: “Trump didn’t blow up the climate summit: what did happen in Bonn?” .

What was the union assessment of COP23? The International Trade Union Confederation expressed concern for the slow progress in Bonn, but stated: “The support for Just Transition policies is now visible and robust among all climate stakeholders: from environmental groups to businesses, from regional governments to national ones. The importance of a social pact as a driver to low-carbon economics means we can grow ambition faster, in line with what science tells us. ”  The European Trade Union Confederation (ETUC) also expressed disappointment, reiterating the demands in its October  ETUC Resolution and views on COP 23  , and calling for a “Katowice plan of action for Just Transition”  in advance of the COP24 meetings next year in Katowice, Poland.

The biggest winner on Just Transition was the Canadian Labour Congress, who pressed the Canadian Minister of Environment and Climate Change outside of formal negotiations at Bonn and received her pledge for federal support for the newly-announced Just Transition Plan for Alberta’s Coal Workers –  including flexibility on federal  Employment Insurance benefits,  and a pledge that  Western Economic Diversification Canada will  support coal communities.   Importantly, “Minister McKenna also announced her government’s intention to work directly with the Canadian Labour Congress to launch a task force that will develop a national framework on Just Transition for workers affected by the coal phase-out. The work of this task force is slated to begin early in the new year”, according to the CLC press release “  Unions applaud Canada’s commitment to a just transition for coal workers” .  The background story to this under-reported breakthrough  is in the National Observer coverage of the Canada-UK Powering Past Coal initiative, on November 15 and November 16.  Unifor’s take on the Task Force is here .

This global alliance is the biggest COP23 news story for Canadians, coming near the end of meetings. Canada, along with the U.K. and the Marshall Islands, announced the “Powering Past Coal” global alliance to phase out dirty coal power plants around the world.  See the government press release for Canada  and the U.K. , and see the Official Declaration, which states:

  • “Government partners commit to phasing out existing traditional coal power in their jurisdictions, and to a moratorium on any new traditional coal power stations without operational carbon capture and storage within their jurisdictions.
  • Business and other non-government partners commit to powering their operations without coal.
  • All partners commit to supporting clean power through their policies (whether public or corporate, as appropriate) and investments, and to restricting financing for traditional coal power without carbon capture and storage.”

Amongst the 20-some jurisdictions already signed up to the alliance are Canada , the provinces of Alberta, British Columbia, Ontario, Quebec, the city of Vancouver, and the states of Washington and Oregon.  Noticeably absent so far are the major coal polluters – the U.S., Germany, China and India. The stated goal is to grow the alliance to 50 members jurisdictions.  The Energy Mix provides a summary and related interviews;   Climate Action Network-Canada reacted with “Powering Past Coal Announcement Shows Rise of International Collective Action; Domestic Implementation will Bring it Home” (Nov. 16);  DeSmog UK calls the alliance the “start of a journey” ;  German news source DW provides an international viewpoint of the alliance, especially focused on the politically-charged debate about coal in Germany.

There were other breakthoughs at COP23, including on  Gender Equality, Indigenous Rights, and Agriculture.   Delegates adopted the first Gender Action Plan  .  As reported in “To combat climate change, increase women’s participation”  in DW  (Nov. 20), for the first time,  there is a plan which  sets out specific activities, with a timeline for implementation, and allocation of responsibilities.  National governments are responsible for reporting back on progress on these activities in 2019.

COP23-It takes roots Indigenous NetworkThe Guardian reported “Indigenous groups win greater climate recognition at Bonn summit”   (Nov. 15) citing the improved language from the 2015 Paris Agreement.  ” The technical document approved at COP23 states:  countries “should, when taking action to address climate change, respect, promote and consider their respective obligations on the rights of indigenous peoples and local communities.”  In response, the Indigenous Environmental Network states: “… while progress has been made on the UNFCCC traditional knowledge Platform for engagement of local communities and Indigenous Peoples, Indigenous Peoples’ rights are not fully recognized in the final platform document of COP 23. The burden of implementation falls on local communities and indigenous peoples.”  News and reports released by It Takes Roots, the Indigenous Environmental Network COP23 delegation, are here, including their report in opposition to carbon pricing: Carbon Pricing: A Critical Perspective for Community Resistancereleased at COP23.

Finally, regarding agriculture:   As reported by the  International Institute for Environment and Development  “After years of fraught negotiations on this issue, the COP23 decision on agriculture  requests the subsidiary bodies of the UNFCCC to simultaneously address vulnerabilities of agriculture to climate change and approaches to tackle food security. Breaking the deadlock on issues connecting agriculture and climate change was a big win for COP23.”

 

Federal government releases “Backstop” policies for provinces not already pricing carbon – Comment period open till June 30

As part of the Pan-Canadian Framework on Clean Growth and Climate Change, the federal government had outlined the  Pan-Canadian Approach to Pricing Carbon Pollution,  a national carbon pricing system with mandatory benchmarks for each province.  Most provinces, representing 97% of the population, already have, or are in the process of designing, their own systems – British Columbia, Alberta, Ontario, Quebec, and Nova Scotia (in process).   On May 18, the Government of Canada addressed the remaining 3%  – most notably in the province of Saskatchewan –  with the release of its Technical Paper on the Federal Carbon Pricing Backstop .

The “Backstop” refers to the fact that the policies  will only apply to provinces that do not have a carbon pricing system of their own  in place by 2018.  The proposal is composed of two parts:  a levy on fossil fuels, and a cap and trade system,  patterned after Alberta’s output-based allocation system, to price pollution from industry.  The levy system would include solid, liquid and gaseous fossil fuels: gasoline, diesel fuel, natural gas, coal and coke – and notably, aviation fuel.  Rates would initially be set for 2018 to 2022, progressing with $10 per tonne increments annually from $10 per tonne of CO2-equivalent (CO2e) in 2018 to $50 per tonne in 2022.  The federal commits to  return direct revenues from the carbon levy to the jurisdiction of origin, but there is flexibility about how the provinces can redirect that revenue.

UPDATE:  The EcoFiscal Commission released a helpful blog post on May 24: Explaining Output-Based Allocations (OBAs),  with a promise of a further explainer about the pitfalls of OBAs, to be released soon.

Public comments about the proposals are accepted until June 30, 2017, at Carbonpricing-tarificationcarbone@canada.ca and will be used to design the final carbon system and enabling legislation and regulations.  A sampling of reaction (below)  gives the government high marks for protecting Canadian competitiveness while reducing emissions.

“Is Canada’s carbon-pricing policy striking the right balance?” (May 18) in the Globe and Mail is a general affirmation of the federal proposals by three experts from varied points of view: Christopher Ragan (Chair of the Ecofiscal Commission), Peter Robinson (CEO of the David Suzuki Foundation), and  Steve Williams ( CEO of Suncor Energy).  A business response, in a press release from  TD Economics, covers similar ground: “ Feds Stick to their carbon- pricing guns” (May 18).  It states: “Botton Line: Carbon pricing is the most efficient way of reducing emissions, and today’s announcement should help Canada achieve meaningful emissions reductions. However, follow-through post-2022 will be crucial to achieving the 2030 target. The details of the carbon pricing backstop strike a good balance, providing clear incentives for emissions reduction while taking competitiveness issues into account, recognizing that a large industrial base cannot be “turned on a dime” and will continue to face competition from non-carbon priced jurisdictions.”

From environmental advocacy groups : In “Five things to know about Ottawa’s carbon pricing plan” , Clean Energy Canada highlights the similarities of the Alberta and Saskatchewan economies, and commends the output-based credit system, saying “there’s no question that a made-in-Alberta approach will also fit Saskatchewan’s economy very well.”  Clean Energy notes that the open question of distribution of revenues will cause much future debate, as will working out the details of the allocations for heavy industry, due by 2019.

The Pembina Institute response, “Ottawa taking carbon pricing cues from provinces”  also commends the output-based allocation system, and concludes:  “It’s worth taking a moment to celebrate how far we’ve come as a country – in large part due to the vision and ambition of provincial premiers – and to reflect on how to maintain this momentum despite choppy international waters.”

The elephant is the room that everyone is talking about is the anticipated court challenge from the government of Saskatchewan, whose Premier Brad Wall has stated that the federal government lacks the constitutional authority to enact a federal carbon price, and who likened  the Technical paper to “a ransom note.”   The Globe and Mail summarizes the tension in “Ottawa, Saskatchewan brace for battle over carbon pricing” .  The Pembina Institute has published a  Q& A interview with Professor Nathalie Chalifour of the University of Ottawa, who also wrote  “The feds have every legal right to set a carbon price” in October 2016 in iPolitics .

Saskatchewan’s preferred route to emissions reduction was clearly laid out in its White Paper on Climate Change released in October 2016, which states: “We should be focusing our efforts on innovation and adaptation, not taxation” – “innovation” largely meaning Saskatchewan’s investment in carbon capture and storage.  And while CBC reports  that Saskatchewan environmental groups are backing the federal Technical paper, there is widespread support for the Premier’s opposition.  According to a CBC report in March, the  Saskatchewan Taxpayers Federation,  the Saskatchewan Heavy Construction Association, and the United Steelworkers Local 5890, sent Prime Minister Trudeau a  joint letter outlining how a federal carbon tax would hurt Western Canada.  In  a CBC report on May 19, ‘You can’t buy a Prius and move dirt’: Critics say carbon tax will punish industry , those two industry groups make the case that  “there aren’t green alternatives for building roads, hauling trailers and working with heavy machinery.”

 

 

Is Europe on track to meet its Paris commitments? Is Canada?

Carbon Market Watch released a policy briefing report in March which found that only Sweden, Germany and France are making successful efforts towards meeting their Paris Agreement targets.   EU Climate Leader Board: Where Countries Stand On The Effort Sharing Regulation – Europe’s Largest Climate Tool  ranked the EU nations  for their actions towards meeting the Effort Sharing Regulation (ESR), currently under negotiation  to set binding 2021-2030 national emission reduction targets for sectors not covered in the Emission Trading Scheme (ETS), including transport, buildings, agriculture and waste.    “Only three member states on track to meet Paris goals“, appeared  in the EurActiv newsletter, summarizing  the report and pointing  to many failings by member nations, including some “who exploited loopholes in United Nations forestry rules to pocket carbon credits worth €600 million”.   The National Observer noted the Climate Market Watch report in “Here`s How Europe ranks in the race against climate change” ,  and  asks “Where does that leave Canada?” .  As part of its own answer, the article  cites a report in The National Post newspaper on March 30: “Secret briefing says up to $300-per-tonne federal carbon tax by 2050 required to meet climate targets” . The article is based on a briefing note to the Minister of  Environment and Climate Change in November 2015, obtained through a Freedom of Information request.  The briefing note tells the Minister that in order to meet Canada’s 2030 emissions targets, a carbon price of $100 per tonne would need to be in place by 2020, with a price as high as $300 per tonne by 2050. The current national price for those provinces who agreed to the the Pan-Canadian Framework is $10 per tonne, rising to $50 per tonne by 2022.

Another  answer to the question, “where does that leave Canada?”  might  be the report released by Environment and Climate Change Canada: Canadian Environmental Sustainability Indicators: Progress Towards Canada’s Greenhouse Gas Emissions Reduction Target , which shows that Canada could be emitting at least 30% more GHG emissions than promised by 2030.  The report, however, is based on the policies in place as of November, 2016 –  before the current Pan-Canadian Framework on Clean Growth and Climate Change.  The government is downplaying its own report, calling it only a set of “plausible outcomes”, rather than a forecast.

 

 

 

 

Canada’s Budget 2017: A closer look at what matters for a green economy

infrastructure from Budget 2017Canada’s federal budget statement, titled Skills, Innovation and Middle Class Jobs, was released on March 22, with a stated  commitment to the Pan-Canadian Framework on Clean Growth and Climate Change, and support for already-announced climate initiatives .  Some specific allocations: $11.4 million over four years for a national coal phase-out, beginning in 2018; $17.2 million over five years for a national clean fuels standard, starting in 2017;  $5 billion to green infrastructure and an additional $5 billion for public transit infrastructure over 11 years.  Disappointingly, the Budget extends the Mineral Exploration Tax Credit for another year, thus failing to end fossil fuel subsidies.

Reflecting their own particular interests, most unions issued immediate reactions:  see the Canadian Labour Congress ; Canadian Union of Public Employees ; United SteelworkersUnifor . In the Toronto Star, Paul Wells called the Budget “a list of decisions to be made later”, and most commentators remarked on the many deferred deadlines.  A March 22 blog by Hadrian Mertins-Kirkwood of the CCPA provides a thorough summary of the provisions relating to climate change policy,  noting that the phrase “climate change” is used 50 times, but  “when it comes to putting Canada on a pathway to deep decarbonization, Budget 2017 comes up short. Significant investments in key areas, such as public transit and clean technology, should not be dismissed out of hand, but the funds are heavily backloaded and too small given the scale and urgency of the climate challenge.”  Mertins-Kirkwood also notes that there are no direct measures to support Just Transition programs, although provisions to improve skills training , workforce development, and small changes to the Employment Insurance program may indirectly contribute to that goal.

Two thoughtful  analyses of the Budget have since been released: on March 24, the Canadian Labour Congress released its Detailed Analysis of Budget 2017, providing an overall assessment, but including a substantial consideration of provisions relating to a green economy.  CLC Highlights: “The Canada Infrastructure Bank will be resourced with $2.8 billion over five years; legislation creating the Bank is anticipated in spring 2017. In the weeks and months following the budget, the Government of Canada will work on a framework to apply a green lens and an employment-based community benefit lens to infrastructure projects, which may become part of the bilateral infrastructure agreements.”  Regarding “Transition to a Green Economy”:  “In Budget 2017, investments in 2017-18 and 2018-19 under the $2 billion Low-Carbon Economy Fund …are scaled back and re-allocated for future years. Budget 2017 offers $2 billion for a Disaster Mitigation and Adaptation Fund, administered through Infrastructure Canada. The budget allocates $220 million to reduce the reliance of rural and remote communities on diesel fuel, and to support the use of more sustainable, renewable power solutions. An array of investments are made in order to support the development of the clean tech industry in Canada. In 2016, Canada joined other G-20 countries in re-committing to phase out fossil-fuel subsidies by 2025. The budget contains two modest proposals to scale back fossil fuel subsidies, but no specific concrete commitments are made to comply with the 2025 deadline.  Budget 2017 provides funds to accelerate the coal phase-out in Alberta, but it is unclear whether there will be funding to deal with the impacts on workers and communities. There is no explicit mention in Budget 2017 of just transition measures, or the government’s proposed just transition task force.”

On  March 27, the Pembina Institute released  Budget 2017: Ready, set implement  which offers its reaction and further suggestions on three issues.  Acknowledging the scale of investment and the importance of consultation, particularly with First Nations, Pembina declares, ” in our view, it’s not unreasonable that the $2 billion Low Carbon Economy Fund has been altered to extend over five years.”   Regarding “Next steps on the National Carbon Price”, Pembina applauds the details provided re the  national carbon price backstop — “set to begin at $10 per tonne of carbon pollution in 2018, and to escalate by $10 per year until 2022.”  Pembina also highlights the announcement of a federal government consultation paper with technical details of the national carbon price, promised in 2017. It urges that the national carbon benchmark price be linked to inflation, be subject to a review in 2020, and that the government design a fair and transparent framework for that review well in advance.

Finally, in “Accelerating decarbonization of goods movement”, Pembina notes the Budget’s commitments to new clean fuel standards and heavy-duty truck retrofit regulations, as well as the allocation of $2 billion over 11 years in a new National Trade Corridors Fund to address congestion and inefficiencies in rail and highway corridors, especially  around the Greater Toronto Area . They re-state their proposal for  North America’s first low-carbon highway between Windsor and Quebec City, based on  building out an “alternative fuelling infrastructure — like electric vehicle fast-charging, compressed natural gas or hydrogen stations — for personal and commercial transportation along the route.”