The federal government, along with eleven provinces and territories, should be congratulated for these accomplishments. And they are likely to be joined by another province, Manitoba, whose Premier, Brian Pallister, has indicated support for the climate plan in principle, but is withholding his signature pending progress on achieving more funding for health care. Saskatchewan’s Brad Wall is likely to be the sole holdout from the national plan.
While Canada’s governments have made great progress, the climate deal is far from perfect, and the path to reducing emissions while strengthening our economy is far from clear. For starters, most governments seem to be reluctant to rely on carbon pricing as the principle tool to reduce emissions, despite the almost unanimous verdict of economists and other experts that pricing is the best way to achieve emissions reductions at the lowest possible cost. Instead, the plan commits to a relatively modest level of pricing, to be frozen at $50 after 2022, and will instead rely on a wide array of regulations, subsidies, and government programs to achieve additional reductions.
The Framework includes a “Pathway to Meeting Canada’s 2030 Target,” but it is a pathway strewn with potential stumbling blocks. It assumes a large amount of reductions from Ontario and Quebec purchases of California carbon credits – likely over 50 megatonnes. All of the “complementary measures” aside from carbon pricing – from building transmission infrastructure to new building standards to clean fuel standards – have costs, either costs paid by governments in the form of spending and subsidies, or costs paid by businesses and consumers to comply with regulations and standards. And while the federal government has previously put out some estimates reductions to be achieved from various measures – 18-20 megatonnes from methane regulations and 30 megatonnes from clean fuel standards, for instance – these kinds of numbers, of either costs or climate benefits – are missing from the new plan. Without the numbers explaining the assumptions behind its reductions pathway, the plan as a whole is difficult to assess. Without a clear accounting of projected costs and projected emissions reductions, it is impossible to know whether the spending and regulations proposed in the plan will achieve better results than relying more on carbon pricing.
Governments have been reluctant to move further on carbon pricing for several reasons. First, there are concerns that higher carbon prices will lead to greater costs for households and businesses. Yet so far only two jurisdictions, British Columbia and (now) Yukon, have indicated that they will make carbon pricing revenue neutral by reducing taxes or rebating carbon revenues to citizens and businesses. Alberta has pledged to return about a third of revenues to citizens and businesses while spending the rest. And Ontario and Quebec seem determined to spend all of their carbon revenues on government programs, some with very questionable climate benefits. The federal and provincial governments missed an important opportunity to make carbon pricing work by promising to refund revenues to Canadians.
A second major concern about pricing is the fairness of Canada having two very different systems, with different price levels, within its borders. While Quebec and Ontario will have a cap and trade system where prices are set by auction, the other provinces will be subject to a price floor set by the federal government of $10 in 2018 rising to $50 by 2022. But because Ontario and Quebec are in a joint market with California, which is awash with cheap allowances, Quebec and Ontario’s carbon price will remain far below the prices faced in Western Canada. This is a recipe for instability in the system. Fortunately, the new plan commits to an independent review of carbon pricing by 2020, when the national price level reaches $30. British Columbia has indicated that they will not increase their price further if they do not believe that Ontario and Quebec are facing an equivalent price. The 2020 review may allow the country to resolve the differences between the systems and come to a consensus on a truly pan-Canadian carbon price.
And Saskatchewan’s opposition still makes the very concept of carbon pricing uncertain, as Brad Wall has threatened to take the national carbon price to court. Of course, a court challenge could cut both ways and help clarify Ottawa’s right to impose a national system of carbon regulation, including carbon pricing, and to ensure national uniformity.
So while the federal government and most of our provinces and territories are to be congratulated for the work they have done so far, there is still much work to do. As governments move from developing a plan to implementing it, Canadians for Clean Prosperity will be calling for them to use revenue neutral carbon pricing, rather than a hodge podge of spending and regulations, as the primary tool to reduce greenhouse gas emissions while strengthening the Canadian economy through lower taxes.
