New evidence about cap and trade policies – an important issue for Ontario voters

With a June 2018 election approaching in Ontario,  climate change policies and the cap and trade program are already emerging as  key issues.  Several relevant reports have been published since the Environmental Commissioner of Ontario addressed these issues in her audit report,  Ontario’s Climate Act: From Plan to Progress  in January 2018.

The government’s own progress report on the 5-year Climate Change Action Plan was released on March 14  , and includes an evaluation of the policies and projects funded through Ontario’s cap and trade program. One such program is the “Low Carbon Building Skills” initiative announced in August 2017 under the Ministry of Advanced Education and Skills Development, which  aims to improve training for low carbon building projects –  including retrofits, green construction and building operations.  Other highlighted initiatives relate to hospital energy efficiency; building and school retrofits; social housing; research into climate change impacts on  building codes.

clean economy alliance progress report ontario year 1A more independent view comes in   A Progress Report on Ontario’s Cap-and-Trade Program and Climate Change Action Plan: Year One ,  published by the Clean Economy Alliance – an alliance of Ontario’s  businesses, clean technology firms, industry associations, labour unions, farmers, health advocates and environmental organizations.   In answering its key question, “Is there any evidence that cap-and-trade has hurt Ontario’s economy or cost jobs?” the report concludes that “Rather than shedding jobs, Ontario added 155,000 jobs between January 2017 and December 2017 – the first year of cap-and-trade. Gains were driven by employment growth in wholesale and retail trade, professional services and manufacturing. Cap-and-trade doesn’t appear to have hurt economic growth either. 2017 marked a 7-year high in Ontario’s GDP growth. Forecasters including RBC, TD Bank and the Conference Board of Canada agree that in 2018, economic growth will slow slightly, but will remain strong.” The report card evaluates impact on emissions reduction, as well as implementation rates by policy area (transportation, buildings and homes, land use planning, and “others”) . It concludes with a brief case study of the incentives for electric vehicles – noting that 2017 was the first year that  more electric vehicles (EVs) were sold in Ontario than in any other province.

On  April 10, the Environmental Commissioner of Ontario released another relevant report: the 2018 Energy Conservation Progress report, Making Connections: Straight Talk about Electricity in Ontario.  In this statistically-dense report, she acknowledges that the province’s electricity  system was 96 per cent emission-free in 2017, but warns that the province will fall short of its 2030 carbon reduction target unless consumer behaviour changes:  “Looking ahead, much more conservation and low-carbon electricity will be needed to displace fossil fuels as the climate crisis continues to worsen. Ontario is not yet preparing seriously for this future.”

With the explicit purpose of informing the policy discussion before and after the Ontario election in June 2018, Ontario 360  has been established at the University of Toronto’s School of Public Policy and Governance, as an “ independent, non-partisan, and fact-based” resource.  On April 18, their first briefing on Climate Policy was published, written by Trevor Tombe, associate professor of economics at the University of Calgary. The briefing reviews the cap-and-trade system and the various initiatives which have been funded by its proceeds, and provides a top-level explanation of the merits of carbon pricing in general, with a comparison of cap and trade and carbon taxes. His conclusion: “while the evidence finds that pricing should be the backbone of any credible climate policy in Ontario, it is not a magic wand. There are areas where it may not be administratively feasible, and therefore narrow complementary policies should also be on the table. And even where pricing is appropriate, reasonable people will disagree over the appropriate price level and coverage. But whatever path forward future governments choose, they should strive for transparency in costs and benefits, clarity in the goals a policy is trying to achieve, and flexibility as new evidence emerges.”

Finally, a related report from the United States was released on April 17, evaluating the economic and environmental impacts of the cap and trade markets of the Regional Greenhouse Gas Initiative ( RGGI) in the U.S. from 2015-2017 .  The Economic Impacts of the Regional Greenhouse Gas Initiative on Nine Northeast and Mid-Atlantic States   found that the nine states which form the network  gained $1.4 billion in economic benefits over the past three years because of the way they invested proceeds, with the biggest payoffs (including in new jobs) coming from investments in energy efficiency programs.  In the same period, there has been no damage to the reliability of the electricity grid, nor a net increase in electricity bills.    The Economic Impacts of the Regional Greenhouse Gas Initiative on Nine Northeast and Mid-Atlantic States  was produced by The Analysis Group , who also were responsible for two previous evaluations since the RGGI launched in 2009, available here .

Manitoba joins the Pan-Canadian Framework, leaving Saskatchewan the odd-man-out

Facing a deadline of February 28 to qualify for approximately $67 million in federal funding through the  Pan-Canadian Framework on Clean Growth and Climate Change, the province of Manitoba announced on February 23 that it will sign on to the Framework agreement.  However, the province will not compromise on its flat $25-a-tonne carbon price, as outlined in its Made-in-Manitoba climate policy document (October 2017).  Manitoba’s letter announcing its adoption of the Pan-Canadian Framework is here .  The federal government’s letter welcoming  Manitoba is here , stating that Manitoba will only be in compliance with the carbon pricing provisions until 2019. Ottawa has stated that it will review each province’s carbon price plan every year starting in 2019, thus postponing until then any further conflict over the federal standard of a $50 per tonne carbon price . Details of the $2Billion Low Carbon Economy Fund, for which Manitoba now qualifies,are here.

According to a CBC report (Feb. 26), Saskatchewan is now the only province not part of the Pan-Canadian Framework, and the federal government is “just waiting” and hoping that they will commit.  New Premier Scott Moe, so far, is holding to the policies outlined in Prairie Resilience: A Made-in-Saskatchewan Climate Change Strategy, released in December 2017 under previous Premier Brad Wall – a strong opponent of a carbon tax.

B.C. Auditor General reports on B.C. climate policies; B.C. Budget only begins to answer the concerns

B.C. Budget 2018  was released on February 20, highlighting a “made-in-BC child care plan, a comprehensive housing plan and record levels of capital investment.” An 8-page Highlights summary is here. The Budget was released just two days after the B.C. Auditor General’s report,  Managing Climate Change Risks: An Independent audit, which found it unlikely that British Columbia will meet its 2020 greenhouse gas reduction target and is off track to meet its 2050 target. According to the Auditor General, the existing Climate Adaptation Strategy has not been updated since it was written in 2010, leaving the province without clear priorities, timelines or assignment of responsibilities.  In addition, the Auditor General states that B.C. is not prepared for climate risks such as rising sea levels and increased frequency and intensity of wildfires.  A summary of the Auditor General’s report appeared in The Tyee on February 20.

How will the Budget help to meet the shortcomings of the climate change file?  The Pembina Institute states “B.C. budget = good news for families, businesses, and climate” , giving credit for investments in wildfire preparedness, energy-efficient social housing, and carbon-tax rebates for lower income households, yet calling for a clearer “road map” for energy and low carbon targets. (The Highlights document says that the government will invest a further $72 million in community resilience and recovery, and rural development, to help survivors of the 2017 wildfire season). The Tyee also highlighted the need for more vision and ambition in “NDP Told to Step Up Game on the Environment” (Feb. 22).   The Pacific Institute for Climate Solutions (PICS) describes the proposals for new incentives for large industrial emitters in “BC budget unveils support for industry to prevent ‘carbon leakage’”  . The David Suzuki Foundation response commends investments in transit, but criticizes the failure to extend the carbon tax to include methane gas. And DeSmog blog notes the absence of discussion in Budget 2018 of the single largest publicly funded project in the province – the Site C Dam.

Ontario’s GHG emissions at lowest level since 1990 – Environmental Commissioner commends the first year of cap and trade but recommends changes for freight sector, green procurement

Ontario logoOn January 30, 2018  the Environmental Commissioner of Ontario (ECO) submitted her annual Greenhouse Gas Progress Report to the Legislative Assembly of Ontario –  an independent, non-partisan review of the government’s progress in reducing emissions for 2016-2017.  The report, Ontario’s Climate Act: From Plan to Progress  covers the period since the  Climate Change Action Plan was introduced in June 2016, and the  cap and trade market became effective January 2017.  The report provides detailed emissions  statistics by sector and sub-sector, catalogues and critiques climate-related policies, and places Ontario’s initiatives in a national and international context – especially the cap and trade market and its relationship with the Pan-Canadian Framework on Clean Growth and Climate Change.  Top-level findings:  overall, GHG emissions were at the lowest level since reporting began in 1990 and “the first year of cap and trade went remarkably well”. Because  Ontario’s market is part of the Western Climate Initiative (WCI) which  includes California and Quebec, the report warns that prices make weaken because of political  uncertainty in the U.S., and also calls for more “bang for the bucks” in the Greenhouse Gas Reduction Account, which manages the proceeds of the carbon auctions.  Chapter 4 includes an explanation and critique of Ontario’s proposed carbon offsets, which are also tied to the WCI, and states that some sectors at some risk of being little more than greenwashing.  The Commissioner singles out the emissions of Ontario’s transportation industry and  states that it will be impossible to meet Ontario’s emissions reduction targets unless urgent action is taken to rein in emissions from the freight sector, with recommendations to “encourage the freight sector to avoid trucking where possible (e.g., through logistics and road pricing), improve diesel truck efficiency (e.g., through incenting the scrapping of older diesel trucks), and shift freight away from fossil fuels (e.g., providing more targeted support for zero-emission trucks).” UPS electric truck The report also calls for improved green procurement policies in government’s own spending and a stronger climate lens for regulation, taxation and fiscal policies.  The  Ministry of Energy is singled out in this regard:   “For example, the Ministry of Energy by itself governs 70% of Ontario’s emissions, yet its 2017 Long-Term Energy Plan does little to achieve Ontario’s climate targets.”  An 8-page summary of the report is here ; the full report, (all 284 pages) is here ;  eight Technical Appendices are available from this link.

 

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.