Carbon price wars–BC, Ontario or Quebec?

The question of how the Canadian provinces should deal with the issue of greenhouse  gas emissions continues to be contentious and occasionally acrimonious.

The new provincial government of Ontario has declared its intention to cancel that province’s cap-and-trade system—referring to it as “a punishing, regressive tax that forces low-and middle-income families to pay more.” A week ago the province of Alberta threatened to pull out of the Federal government’s carbon pricing scheme after progress on building the Trans Mountain Expansion pipeline ground to a halt. Progressive Conservative leader Andrew Scheer has vowed to shut down carbon pricing asserting: “Conservatives know that carbon tax isn’t just bad for big business; it’s bad for everyone. And that’s why, come 2019, my first act as prime minister will be to get rid of it once and for all.”[1]

So is it?  Bad for everyone?

There is no question that pricing carbon works. Over 51 countries and subnational jurisdictions are now operating carbon pricing systems, or planning to do so.[2]  A report last year by two of the world’s top  economists was clear: “A well-designed carbon price is an indispensable part of a strategy for reducing emissions in a efficient way.[3]

Earlier this year, Environment and Climate Change Canada published the results of a modeling exercise which showed that a carbon pricing system applied across Canada would reduce greenhouse gas pollution by between 80 and 90 million tonnes by 2022–making a significant contribution to meeting Canada’s Paris Agreement target of a 30% reduction over the period 2005 to 2030. [4]

But some forms of carbon pricing systems seem to work a lot better than others. Can we learn a few lessons and draw some conclusions by looking at the performance of the four Canadian provinces where carbon prices have been introduced: Quebec, Ontario, Alberta and British Columbia?  Of the four, British Columbia’s revenue-neutral carbon pricing system is widely regarded as a major success.[5]  But the latest data on Canada’s greenhouse gas emissions paint a rather different picture.

Sources and sinks

Canada recently filed its annual report on greenhouse gas sources and sinks to the United Nations Convention on Climate Change.  The report shows greenhouse gas emissions for all the Canadian provinces and territories for the years 1990 and 2005, and then each year for the period 2011 to 2016.[6]  If carbon pricing is working successfully in the four provinces where a system has been established, we would expect to see significant reductions in greenhouse gas emissions during the last few years—particularly for British Columbia, which was the first to get started.

The table below shows greenhouse gas emissions in million tonnes of carbon dioxide equivalent (MtCO2e) for the four provinces where carbon pricing is in effect.

Clearly British Columbia is not the star performer it’s cracked up to be.  Emissions have not fallen—even rising slightly over this six year period, and yet BC’s carbon tax started in 2008. Alberta’s carbon levy didn’t get running until 2017 so it’s not surprising that it doesn’t yet show a significant result—but the more recent trend is downwards, which is a good sign.

Ontario and Quebec are not the only provinces that succeeded to reducing their emissions between 2011 and 2016. Nova Scotia reduced its emissions by a whopping 25.4% and  New Brunswick came in second with reduction of 18.2 %.  Neither of these provinces has a carbon pricing scheme in effect—but they each have formulated and implemented climate action plans under which specific actions focused on industry and fossil-fueled power plants have resulted in substantial reductions in their emissions.[7]

Have these policies to reduce emissions impeded economic growth in the provinces where they have been successful?

In 2017, all the provinces notched up an increase in GDP. Over the period 2012 to 2017, the top performers are shown in the table below.[8]

The top three performers in terms of GDP growth are British Columbia, Ontario and Quebec.  But only Ontario and Quebec managed to both significantly reduce emissions and substantially grow their economies at the same time.

For Canada as a whole, GDP increased by 15.4% over the period—about the same as Quebec.  It is also worth noting that Ontario and Quebec are Canada’s largest provincial economies—so if Canada is to meet its Paris Agreement target, it is encouraging to see the two largest provincial economies heading in the right direction.

Carbon pricing plus

Putting a price on carbon pollution is essential.  But is that all that’s required in order to reduce emissions of greenhouse gas emissions to a minimal level?  Recall that the top economists said that a well-designed carbon price is an indispensable part of the strategy.

So where are the other parts? And in Canada, is carbon pricing well-designed?

The star performers over the last few years have been Ontario and Quebec—not British Columbia. And one thing that Ontario and Quebec have in common is that they disburse a substantial amount of their carbon revenues on complementary programs that are aimed at directly reducing carbon emissions from specific industries and economic sectors.

Let’s take Quebec

Allons-y

Quebec has budgeted for revenues of approximately $2665 million (CAD) over the 8-year period from 2013 to 2020: so the province is expecting to receive revenues averaging about $330 million a year over this period. Over 80 % of carbon revenues generated by the cap-and-trade program is invested in measures to increase energy efficiency—predominantly in the transport sector where public transport employing hybrid or electric buses is allocated more than half of the total budget.  The pie chart shows the budget for the disbursement of carbon revenues for the period 2013 to 2020.[9]

More than 70% of the budget for energy efficiency improvements is for a single budget line: The promotion of public transport and alternative means of transport by improving the supply and by developing the infrastructure and enabling sustainable choices. [10]

There are no indications that Quebec’s successfully operating carbon pricing mechanism is having a negative impact on its economy. The province’s GDP grew 3.1 % in 2017. Although this was slightly less than the national average of 3.3%, it was still the province’s strongest rate of growth since 2000 and more than twice that of 2016. Among the ten provinces, Quebec recorded the 4th highest GDP growth rate.

Quebec’s per capita GHG emissions also dropped significantly: declining from 11.4 t/CO2e to 9.3 t/CO2e per capita from 2005 to 2016. The latter number is less than half the national average in 2016 of 19.4 t/CO2e per capita, and is less than Ontario’s and British Columbia’s per capita figures of 11.5 and 12.6 t/CO2e respectively. [11

Canada’s government needs to do more than just run simulation models that show that pricing carbon at $10/tonne will lead to substantial reductions in emissions by 2022.  Pricing carbon is only half the story.  It’s a necessary but not a sufficient condition.

The government needs to highlight and showcase the provinces where carbon pricing has actually worked.

That’s Ontario and Quebec.

 


Sources and sinks:

[1] See The Toronto Star, 25 August 2018. Front page.

[2] State and trends of carbon pricing 2018. World Bank Group.

[3] Report of the high-level commission on carbon prices. It’s an excellent report.  Available at : https://www.connect4climate.org/sites/default/files/files/publications/CarbonPricingReportFinal.pdf

[4] See the report from  Environment and Climate Change Canada: Estimated results of the federal carbon pollution pricing system. Available from: https://www.canada.ca/content/dam/eccc/documents/pdf/reports/estimated-impacts-federal-system/federal-carbon-pollution-pricing-system_en.pdf

5] See for instance the report by the Pembina Institute: The BC carbon tax backgrounder. Available at www.pembina.org/pub/the-bc-carbon-tax

[6] Environment and Climate Change Canada: National Inventory report 1990-2016. Check it out here

[v7] Nova Scotia’s impressive progress in reducing emissions has come at a cost.  See: How one province met Canadas 2030 emission reduction target. At: http://policyoptions.irpp.org/magazines/october-2016/how-one-provice-met-canadas-2030-emissions-reduction-target.  New Brunswick’s reduced emissions are largely due to the closure of the Grand Lake coal-fired power plant and the oil-fired plant at Dalhousie.

[8] The GDP data are from Statistics Canada, Table 36-0222-01 updated to 2017 using statcan data at:  https://www150.statcan.gc.ca/n1/daily-quotidien/180502/dq180502a-eng.htm

[9] See: Le Québec en action vert 2020 : Plan daction 2013-2020 sur les changements climatiques. The report has a budget with 31 budget lines which I have grouped into the categories shown in the pie chart.  The report is available at : http://www.mddelcc.gouv.qc.ca/changements/plan_action/pacc2020.pdf

[10] The budget line in French is : Promouvoir le transport collectif et alternatif en améliorant l’offre, en développant les infrastrucutures et en facilitant les choix durables.. See Le Québec en action vert 2020, page 54.

[11] The per capita emissions data are calculated from the GHG emissions shown in Table S-4 of the National Inventory Report 1999-2016 published by Environment and Climate Change Canada in 2018, and from the demographic data published by Statistics Canada which can be accessed at: https://www150.statcan.gc.ca/n1/tbl/csv/17100005-eng.zip

 

3 Replies to “Carbon price wars–BC, Ontario or Quebec?”

  1. Ron Tolmie

    Renewable energy is free; it does not need expensive distribution networks; it can be stored to handle both supply and demand variations; and its capital costs can be substantially lower than those of fossil fuel systems. Unfortunately, instead of debating those advantages the advocates for fossil fuels have successfully changed the subject – substituting the silly notion that by adding a tax to the fossil fuels the choice can be incrementally biased to favour renewables. The huge economic benefits from using fossil fuels have been traded in for a truly feeble alternative.

    Carbon taxes do not present any problem for fossil fuel suppliers. They can simply accept a modestly higher price and make noises about how the government is burdening us with questionable taxes. The latter guarantees that the tax will always be too small to actually make a significant difference.

    The fossil fuel advocates can further muddy the water by falsely claiming that we need to prioritize energy efficiency. Energy efficiency is certainly important to the fossil fuel crowd because the fossil fuels resources are limited. If we can be conned to emphasize efficiency then they will certainly benefit while the costs are incorrectly ascribed to the need to switch to renewables.

    In Canada our greatest energy need is for heat to keep us warm in the winter. That need can be met by collecting and storing summer heat – a virtually unlimited resource – and by using the storage system to store cold (generated by the heat pumps) as well, to be used for air conditioning. Such systems can also collect heat for domestic hot water so most of the energy demand for our homes can be supplied from local resources. Such systems could completely eliminate our reliance on fossil fuels for heating, and our reliance on electricity for air conditioning, and our need for fossil-fuelled peaking stations, and if you dig deeper you will find that they could also make electric vehicles a much more attractive alternative to gasoline cars. Attempts to dig into such issues are constantly sidetracked by pointless articles on carbon taxes, like the above report.

    Carbon taxes are not even possible in North America (and particularly in Canada) because we are not able to measure the actual GHG values. Nearly all of the natural gas that we are using comes from fracked wells. In the fracking process only a part of the methane that is released by the fracturing is captured for recovery via the drill pipe. Most of the released methane escapes into the surrounding rock, which is mostly limestone that has about a million times the permeability of the shale in which it was imprisoned for millions of years. That gas is still typically 2 km underground so it takes a long time for it to reach the surface but there is nothing to stop it so most of it will eventually reach the surface, even though the transit time may be decades. When it does reach the surface the contribution to GHG in the atmosphere will be measured in the thousands of megatonnes/yr. In the interim the rate is indeterminate, so we have no way to calculate the appropriate tax, and no way to identify who the tax should apply to.

    As things stand our governments ignore the upstream methane emissions, they grossly underestimate the fugitive emissions, and they apply a GWP of 25 for methane instead of the more appropriate IPCC value of 86 (which is likely to soon be revised upwards). Instead of reporting the GHG that results from our choice of energy sources they are reporting a very different (and much lower) number, the CO2 that is produced by burning the fuels within their jurisdiction.

    We should require that our governments be more honest in their reporting methods, but really the more urgent need is to stop using dead end procedures like carbon taxes and refocus our efforts on implementing real solutions.

  2. […] Carbon price wars–BC, Ontario or Quebec? […]

  3. Tim Johnson

    We should note that previous studies seemed to show that BC’s emission has been reduced by between 5 and 15% after the carbon tax was introduced. So were these numbers–which have been widely report including by the Federal government (ECCC), wrong? The data showing a reduction in BC’s emissions compared actual and modeled numbers with the ‘counterfactual’ case. In other words, BC emissions are 5-15% lower than they would have been if there had not been a carbon tax. So that sounds good. Except that just getting to a flatline is not the objective. Yes the C tax has helped. But it’s not been good enough. And these numbers have been reported as if they referred to actual emission coming down by 5 to 15%. That’s not the case–as the government’s own emissions data clearly show.
    Other analyses have focused on per capita emissions–which is really stupid. Per capita emissions can come down while actual emissions are increasing. If the population rate of growth exceeds the emission rate of growth, emissions per capita will be reduced –even though emissions are rising.

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