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.

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” .