Updating carbon pricing in Canada: PBO Report , Supreme Court case, and provincial opt-outs

On October 8, the Office of Canada’s Parliamentary Budget Officer (PBO) released its latest report on carbon pricing, Carbon pricing for the Paris target: Closing the gap with output-based pricing . The report concludes that the government’s existing and announced policies and measures – including a carbon tax which rises to $50 per tonne in 2022 and an Output-Based Pricing System (OBPS) will not be sufficient to allow Canada to meet its emissions target under the Paris Agreement – 30 per cent below 2005 levels by 2030. The PBO models three complex scenarios to estimate that the level of the carbon price necessary to achieve the Paris target ranges from $67 per tonne to between $81 and $239 per tonne.

A critique by Clean Prosperity , a Toronto NGO focused on carbon tax research and education,  finds two of the PBO scenarios “unrealistic” and calls for a fourth approach, which transitions the industrial output-based pricing system to economy-wide pricing plus a border carbon adjustment. Clean Prosperity concludes:  “The bottom line is that carbon pricing works and should continue to increase after 2022 at roughly the same level as today in order to help us meet our Paris targets.”  Clean Prosperity promises to  release its own modelling of such an approach “in the near future”.

The report was released while a constitutional challenge to the federal carbon pricing system is still before the Supreme Court, and does not reflect the September 20 announcement that “The Government of Canada will stand down the federal carbon pricing system for industry in Ontario and New Brunswick as of a date in the future.” (that date and formal change to the systems to be determined in consultation with each province.) 

Smart Prosperity (a University of Ottawa research centre)  posted a blog and a report Ontario’s Options: Evaluating How Provincial Carbon Pricing Revenues Can Improve Affordability on October 8 .  Smart Prosperity has published a number of relevant working papers, including : Environmental Taxes and Productivity: Lessons from Canadian Manufacturing  (April 2020);  Border Carbon Adjustments in Support of Domestic Climate Policies: Explaining the Gap Between Theory and Practice (Oct. 2019) and Do Carbon Taxes Kill Jobs? Firm-Level Evidence from British Columbia in March 2019.  Canada’s Ecofiscal Commission also researched and published numerous reports (archived here ) before it closed its doors in November 2019.

Canada’s Ecofiscal Commission issues final annual report

ecofiscal final 2019 reportIn November 2019, Canada’s Ecofiscal Commission announced that their five-year mandate was coming to an end with the release of their final research report,  Bridging the Gap: Real Options for Meeting Canada’s 2030 GHG Target , which recommended quadrupling of Canada’s carbon tax by 2030.   On April 22, the Commission released their  2019 Annual Report , with research summaries of their work,  and metrics which attest to their strong influence on Canada’s policy debate over their five years of operation.  With a mission to: “identify and promote practical fiscal solutions for Canada that spark the innovation required for increased economic and environmental prosperity”, the Commission’s major focus was on carbon pricing –  expressed in research, publications, educational events, and in 2019, in supporting the constitutionality of carbon pricing in the court cases brought by Saskatchewan and Ontario.   Although not stated explicitly, the final Letter from Director Chris Ragan implies that the resources of the Commission will be archived – the Ecofiscal Commission website is here.  Many of the principal authors at the Ecofiscal Commission are finding a new home as part of the new government Institute for Climate Choices , announced in April 2019 – for example, Don Drummond, Stewart Elgie, Richard Lipsey, Mike Moffatt and Nancy Olewiler.  Chris Ragan (formerly Executive Director of the Ecofiscal Commission) and Mel Cappe  are both members of the Board of Directors of the Institute for Climate Choices.

Final report from Canada’s Ecofiscal Commission recommends stringent carbon pricing to reach 2030 GHG goals

bridging the gapOn November 27, the Ecofiscal Commission announced that their latest research report, Bridging the Gap: Real Options for Meeting Canada’s 2030 GHG Target  will be their last.  This final report brings to an end five years of research and publication which has centred largely on the cost effectiveness and optimal design of carbon pricing for Canada.   Bridging the Gap  recommends that “If governments wish to meet their climate goals at least cost, they should rely on increasingly stringent carbon pricing” – steadily increasing the carbon price by around $20/tonne every year from 2023 until 2030. The next best option is increasingly stringent, well-designed, flexible regulations, including for example, the Clean Fuel Standard. The report argues that “It’s tempting to think that alternatives to carbon pricing will cost us less. But their costs are hidden and actually cost us more. …. Our modelling shows that carbon pricing will grow Canadian incomes on average by $3,300 more in 2030 relative to a policy approach that relies on a mix of subsidies and industry-only regulations…No matter what policy tool—or combination of tools—we use to achieve Canada’s 2030 target, policies will have to be significantly more stringent than they are today. The regulatory approaches we model, for example, require halving the emissions intensity of industrial production by 2030.”

The report provides new forecast results using Navius Research’s GTECH General Equilibrium economic model, to cost and evaluate three options for climate policy which would allow Canada to meet its 2030 GHG target: #1: Carbon pricing with revenues recycled toward percapita dividends and output-based pricing for EITE sectors; #2: A range of regulations and subsidies applied across the entire economy; #3: A range of regulations and subsidies, excluding those that would result in direct costs for households.  Although the authors acknowledge that impacts will be felt on jobs, especially in emissions intensive industries, employment impacts are not estimated or discussed.

Calls for improvements to Ontario’s failed climate policies

failure-to-launchEnvironmental Defence released a one-year progress report on the climate change policies of the Ontario government in early October. Failure to Launch   reviews each of the promises/actions proposed by the Conservative government of Doug Ford under its much-citicized “ Made-In-Ontario Environment Plan,  which lowered Ontario’s target for GHG emissions reductions from 37 to 30 per cent below 2005 levels by 2030 and cancelled renewable energy programs.   Environmental Defence finds that the government has not even made sufficient progress in its first year to meet the diminished GHG reduction goals, and makes specific recommendations for accelerated action. A summary appears in the Environmental Defence blog .  Then, on November 7, thirty environmental advocacy groups, including Environmental Defence,  posted an Open Letter to the members of Ontario’s provincial parliament  on November 7, with specific demands which would take serious action on climate change.  This coincides with the recall of the legislature after an historic 4-month recess.

The government led  the new session with its  2019 Economic Outlook and Fiscal Review  under a new banner: “ A Plan to Build Ontario Together”.  Although analysts note many “about face” policy changes to some programs, the climate/environmental file hasn’t benefitted, as described in an article in the National Observer . It notes that there was no mention in the budget of the previously announced Ontario Carbon Trust, a fund of $400 million over four years to support the private sector in developing clean technologies .

Ontario to pursue carbon tax case, and dragging its feet on action

According to analysis of the Economic Outlook from TVO: “Anyone looking for signs of reasonableness from the Tories on carbon pricing will be disappointed: despite the recent federal-election results, the fall economic statement reiterates that the government will keep fighting the federal carbon tax in court. The Supreme Court of Canada is expected to hear the case in March 2020.”

On October 31, this press release  proposes to expand fines for environmental regulations, reinvesting that revenue “to support projects that provide local solutions to environmental issues”. Environmentalists were not impressed.

white pines decomissioningThe White Pines wind farm decommissioning began in October, with the government following through on its 2018 decision to cancel the almost-completed  project, despite an estimated cost to taxpayers of $100 million in costs and penalties.  The local press of Prince Edward County reported on October 31 “ Sadness for green energy supporters as dismantling begins on turbine project” . The National Observer published a related article concerning the costs of cuts to clean energy  programs, including White Pines: “Doug Ford ‘throwing away’ millions to kill Ontario clean energy programs” (Nov. 19). The article cites a cost to the taxpayer of $230 million from killing more than 750 renewable-energy projects.

A government press release on November 7 announced a “Multi-Sector Impact Assessment Will Help Communities Identify Climate Change Risks and Strengthen Resilience”.   Apparently there’s no urgency: the private sector contract for this assessment will be tendered in 2020 for 2 years, producing a final report in 2022.

 

Alberta updates: Budget targets public sector, sets stage for new regime for oil and gas industry

With the federal election over, the provincial government in Alberta released two important new policies:  the Budget statement on October 26 , and the Technology Innovation and Emissions Reduction (TIER) regulation, a system for  output-based carbon pricing for industrial GHG emissions.

Alberta Budget – a recipe for a “Kenny Recession”?:

A government press release   announced the budget on October 26, with Highlights provided at a  Budget webpage here . The government states that social service programs: “will be redesigned methodically and responsibly to address economic, social and fiscal challenges, while continuing to support the most vulnerable. Countering that statement is “Alberta wants to cut public service wages. It will hit everyone from teachers to hospital support staff” in the National Observer (Oct. 30) , as well as reaction from the unions, including the Health Sciences Association of Alberta  (HSAA)  , which calls the Budget “incredibly dishonest” and details the cuts which form “the groundwork to justify a transfer of vital public services to the private sector”.  The Alberta Federation of Labour (AFL) campaign against the Budget flies under the flag of “The Kenney Recession” , with arguments built on a report prepared for the AFL by  economist Hugh Mackenzie:  The Kenney Recession: Proposed UCP cuts would hurt economy worse than oil price crash .  The report considers four different scenarios and states “ “The loss of 50,000 jobs during the oil price crash from 2014 to 2017 will pale in comparison to the estimated 113,500 jobs that would be lost in Alberta if the Kenney government goes ahead with cuts of the magnitude being considered.”   In an earlier press release, AFL President Gil McGowan disputes the  findings of a government-commissioned report by Janice MacKinnon, saying “her report is filled with distortions and outright lies about public services, public-sector spending and public-sector wages.”

As for the Budget’s impact on the energy sector, the government’s Highlights state an allocation of $601 million, yet do not directly mention the Coal Workforce Transition Program or Fund,  initiated by the previous NDP government  and flagged for concern in an October 15 article in The Energy Mix .

The Government’s Budget Highlights for  the Energy industry are:

increase focus on natural gas and pipelines by implementing a strategic plan to help reinvigorate the industry and stand up for Alberta’s economic interests

work with industry to help streamline project approvals, improve pipeline access and facilitate the construction of infrastructure to get our natural gas to international markets

review the Alberta Energy Regulator to identify changes and enhancements to its mandate, governance and operations so Alberta remains a predictable place to invest and a world leader in responsible resource development

extend the royalty credit model under the Petrochemicals Diversification Program to incent future projects and cancel the Partial Upgrading Program and Petrochemicals Feedstock Program to reduce the financial risk to Albertans

cancel the transition to a capacity market and end the rate cap program – saving Albertans about $270 million

cancel the crude-by-rail program, saving Albertans at least $300 million

establish the Canadian Energy Centre corporation to implement the “Fight Back Strategy” to proactively defend our critical energy industry and the people who work in it

TIER – the proposed new Emissions Reduction Regulation for industrial emitters: 

On October 29, the government announced the introduction of Bill 19, the Technology Innovation and Emissions Reduction Implementation Act (TIER)  , characterized in the press release  as ” the centrepiece of government’s upcoming climate strategy, .. an improved system to help energy-intensive facilities find innovative ways to reduce emissions and invest in clean technology to stay competitive and save money. TIER is a unique solution that allows the province to reduce emissions without interference from Ottawa.”

Reaction comes in  “Alberta bets the house on technology to help province slash carbon pollution” in the National Observer , and in a lengthly  Opinion piece by Andrew Leach, “Alberta’s TIER regulations good on electricity, not so good on oilsands” at the CBC. Leach  characterizes the TIER policy as “a serious greenhouse gas policy in Alberta” but states that it is “backwards”:  “TIER makes emissions-reducing innovation less advantageous than it would be under CCIR [the existing system], since the better performing your new facility is, the lower your emissions credits will be every year for as long as the policy remains in place. “

The Smart Prosperity Institute  provides an explanation of the complexities of the proposed system, which if passed, would take effect in January 2020:  “TIER in a nutshell – The Alberta Technology Innovation and Emissions Reduction regulation” (Oct. 30) . More briefly, CBC published  “How Alberta will keep its $30-per-tonne carbon tax but make it easier for some big emitters to avoid paying” .