The climate-related news this week focused on a new report on carbon pricing. The EcoFiscal Commission made the case that raising the carbon tax to $210/ton by 2030 is the best way to meet the current climate target.

Unfortunately, this approach is nearly irrelevant to a climate emergency. This report focuses solely on policy instruments to address the gap between the current plan and meeting the existing target – 30% below 2005 levels by 2030. The level of ambition of the target bears a direct relationship to the usefulness of their analysis. It might be that the EcoFiscal Commission is correct and that a carbon price alone is the best, “least cost and politically viable” (the report’s stated goals) approach to meet the current target. But it is irrelevant to what must be done.

Although the Commission does good work on carbon pricing, it is disturbing that their work did not begin with the IPCC Report (Oct 8, 2018) that holding to 1.5 degrees global average temperature increase is essential. Holding to 1.5 degrees is the Paris target. The current target for Canada is the Harper target and inconsistent with the Paris goal. To achieve Paris and 1.5 degrees, Canada is required to do twice as much by 2030 – 60% reductions. Carbon pricing alone cannot get us there.

We need to be more ambitious on multiple fronts, of which carbon pricing is just one. Canada must ramp up our target for COP25. Reinforcing this urgency, the United Nations Environment Programme (UNEP) released a report this week tracking expected global average temperature increase if all the countries on earth achieve their current targets. The terrifying news is that, without deep cuts and fast, we are on track to a world 3.2 degree C hotter – as a global average- than at the time of the Industrial Revolution. UNEP executive director Inger Andersen said, “Our collective failure to act early and hard on climate change means we now must deliver deep cuts to emissions.” UNEP estimates to keep the world livable we need to cut emissions by 7.6% per year, starting now.

The recent report on how Nova Scotia could make the transition to 90% renewable energy by 2030 is much more relevant to the climate plan we need. See Ecology Action Centre report here: https://ecologyaction.ca/ElectricityReport.

Like our plan, it incorporates many simultaneous policy choices. Note that the Nova Scotia government has adopted a target of 53% reductions by 2030. The NS government calculated that this target is a translation from the IPCC October 2018 report red line that globally we need reductions of 45% CO2 reductions below 2010 levels by 2030. I know many in Nova Scotia, especially Greens, are highly critical of the vagueness around the provincial law, but there is no doubting that their target is the most aggressive in Canada.

We stick by our comprehensive plan ‘Mission Possible ‘; within which carbon pricing is important – but not the be all and end all. It is in a much larger context of more important actions – investing in the national electricity grid, cancelling any new fossil fuel infrastructure, including pipelines, ending fossil fuel subsidies, etc.

In our plan, we have no new mega-dams, no new nuclear. We invest heavily in energy efficiency and conservation.

We need a transformative plan for our economy to go off fossil fuels. By 2030, our plan dramatically reduces carbon dioxide – by 60%. In that context, carbon taxes shrink in significance.

The slavish fixation on carbon pricing is a distraction.

Tomorrow the COP25 negotiations in Madrid will begin, running until December 13. As I mentioned last week, Canadian Greens will be there. Amita Kuttner, William Gagnon, Claire Kelly, Tim Thompson and Addison Fach will be there for both weeks, while John Kidder, Alexa Lewis and I arrive on Sunday. New Environment Minister Jonathan Wilkinson arrives on Tuesday of the second week. By the way, Minister Wilkinson and I had an excellent initial conversation a few days ago.

On Thursday Parliament opens with election of the Speaker and the Speech from the Throne, Friday is a day of observance of the École Polytechnique tragedy and a re-commitment to end violence against women.

By the time you wake up next Sunday Morning, I will be in Madrid, but I will write you a breezy note before take-off with reflections on the Speech from the Throne to pop up in your in-box.
Have a great week!
Elizabeth

This weekly blog is published by Elizabeth’s EDA in Saanich-Gulf Islands. You can sign up for it here. 

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Hon. Catherine McKenna
Minister of Environment and Climate Change
House of Commons
Ottawa, ON K1A 0A6

February 12, 2018

Re: Consultations on the draft legislative proposals to implement the federal carbon pricing system

Dear Ministers,

I have stood in the House on countless occasions to ask what actions this government is taking to reach the Paris target of holding global average temperature increase to no more than 1.5˚C above pre-industrial levels. Repeatedly, I was told to wait for the national carbon pricing scheme. With the legislative proposals for the Green House Gas Pollution Pricing Act before me now, I see a push in the right direction. I even see that ‘climate’ appears seven times in the document. However, I am not at all convinced that the mechanisms put forward in this draft possess the stringency we need to reduce greenhouse gas emissions to a level compatible with the Paris target. I am not even convinced it will hit the much weaker, Harper-era target this government has pledged, 30% below 2005 levels by 2030. This jeopardizes our ability to stay within the critical 2˚C range.

On the whole I can say it is better to have a Federal Backstop than none at all, and that I understand carbon pricing is just one part of what the government intends to do and must do, to address climate change effectively. I can applaud the broadened application to non-combustion sources of emissions, like venting and flaring. I am also pleased that rates will be calculated according to the UNFCCC’s global warming potential factors and emissions factors. However, despite scheduled increases to the carbon levy over the next four years, the rate starts and ends at an unacceptably weak place. I believe a schedule extending to 2030 would have sent a stronger price signal to producers and consumers while allowing more time for business and investment planning.

I am most taken aback by the Output Based Pricing System (OBPS). I expected a carbon tax that would apply, per tonne, to actual emissions across the board. Instead I see proposed a combination of intensity targets, sector-by-sector standards, and unbelievably generous fuel exemptions for big industry. We cannot afford to weaken the Pan-Canadian Framework, which even now cannot take us to Paris; we need every possible tonne reduction. Jurisdictions that have carbon pricing in place stress the importance of simplicity. Exempting large polluters from the treatment we would give smaller ones and creating a separate system for monitoring standards, intensities, compliance units, and offset credits does not fit my understanding of ‘simple.’ Globally we are seeing incentives moved away from fossil fuels to renewables. I think Canada can do more to push it in this direction. For this reason, I lay out areas of the legislative proposals worth reconsidering, restructuring, or rescinding, all with an aim to decarbonize Canada’s economy at a necessarily more rapid pace.

A Missed Opportunity for Green Tax Reform

There was a missed opportunity this year to dovetail tax reform with pollution pricing. The administration has made both a priority for this legislative year, but it has failed to view them as complementary measures. A higher carbon levy could have been paired with closing corporate tax loopholes and a reduction in personal income and small business taxes. Further, the elimination of the complicated and inefficient system of subsidies and tax havens, paired with an estate tax and financial transaction tax could have generated revenue for the Green Climate Fund. Canada has a bigger role to play in subsidizing adaptation and mitigation efforts in developing countries on the frontlines of climate disaster, particularly as the United States withdraws much need support. Altogether, carbon pricing could have been cast as an efficiency gain in areas of the country that express less enthusiasm for environmental reform.

The Green Party of Canada is in favour of a Carbon Fee and Dividend system, which would greatly simplify and cohere what is currently a patchwork set of proposals for reducing greenhouse gas emissions countrywide. The levy would apply on fossil fuels at the source, at the point of extraction or importation. Border adjustment tariffs consistent with the World Trade Organisation’s rules would account for competitiveness while generating additional revenue. This revenue would then be recycled to all Canadians as a per capita dividend, either in the form of a rebate cheque, a personal income tax reduction, or a Refundable Climate Action Tax Credit to lower-income families. The dividend has a built-in progressive feature: it would account for a higher percentage of annual income in lower-income households or for those who conserve more.

Taking advice from economists, this fee would start at $50/tCO₂ and work its way up in $10 annual increments to $200/tCO₂ by 2030. This is a far more realistic carbon price that sends a clear signal to producers and consumers to reduce their dependence on fossil fuels. It would also make sense to index the price to inflation, so that the incentive to reduce emissions does not decrease over time the way it did in B.C. when the rate was frozen in 2012. Canada’s overall goal must be a substantial decarbonization of our economy. The Green Party Carbon Fee and Dividend proposal will allow Canada to achieve a target of 65% less CO₂ in 2030 compared to 2005, and zero emissions by the end of the century. This method reduces both carbon emissions and poverty, and creates no new and expensive bureaucracy.

The Schedule of Levy Rate Increases

I understand the concern that taxpayers and voters will not like seeing drastic increases at the pump, that incremental change makes carbon pricing more palatable. But these rates will not add up to keeping our commitment to the Paris Agreement. It has been reported that, by its own calculations, the government would need to impose a $100/tCO₂ levy in 2020, going up to $300 by 2050 to stay on track with its commitment.[1] Marc Lee, senior economist for the Canadian Centre for Policy Alternatives, has pointed out that while Canadians accept low prices at the pump as a given, Europeans consider rates 50-90% higher than what we have here as their normal. He also estimated that if the government levied $140-150/ tCO₂, Canadians would see gas prices close to the level they were at in 2014 before the price of oil plummeted.[2] Had a carbon price been introduced ten years ago, there might have been an argument for starting as low as $10 and introducing change gradually. But Canada dragged its heels and emissions have soared. The efforts we make now must measure up.

I echo the Pembina Institute’s call for Environment Canada to commit to including those sources of emissions not currently under the levy as the accuracy of measurements improves. This would include emissions from landfill sites, for instance, or methane from oil and gas production. A major piece of the puzzle currently missing is offshore oil and gas exploration, and the electricity sector. 18% of Canada’s electricity comes from emitting sources and nuclear energy, which has its own environmental costs. I avidly await the government’s proposals in this area.

Jurisdictional issues

After the Harper-era of federal governance, I can understand the need to repair relationships with the provinces. But giving them license to develop their own carbon pricing programs can turn from a tool of empowerment to downloading federal responsibility to the provinces. I completely disagree with the Ecofiscal Commission’s report from 2015 that proposed a disturbingly complicated patchwork of different carbon pricing regimes across different provinces. The result is incoherence and ineffectiveness from the perspective of both producers and consumers.

I would urge the government to set clearer guidelines on how provincial programs will be evaluated for compliance. How will the federal government avoid giving advantage to one province over another? For instance, the Tax Executives Institute point out that Alberta has an upstream exemption for oil and gas until 2023.[3]

What is the protocol for integrating the Federal Backstop where a jurisdiction falls short? Clean Energy Canada suggests that a federal ‘top-up’ could produce significant administrative complexity.[4] I recommend along with them that the federal government explore whether imposing the backstop in whole rather than in part is more cost-effective and better for business in a jurisdiction does not meet the benchmark.

How does the CRA and Finance Canada intend to make transparent the collection and return of revenue generated by the carbon levy back to the provinces? Has consideration been given to the Pembina Institute’s recommendation to create a fund for backstop revenues separate from the Consolidated Revenue Fund of Canada?

Finally, it is unclear why rail is subject to the federal carbon levy for any portion of a journey that is in a backstop jurisdiction whereas aviation and marine transportation are to be taxed on intra-jurisdictional travel only. As the government moves forward with its plans to tax the use of aviation fuel interjurisdictionally, it should impose higher rates for flights that are long-distance, high altitude, and/or at night as they emit higher amounts of NO₂. As a preliminary question, I would ask how the forthcoming model will interact with or potentially set an example at the international level, for instance with the development of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).[5]

Eliminate Subsidies for the Fossil Fuel Industry

By far the most egregious proposal in this document is the provision of additional tax breaks for the biggest polluters. Based on 2015 data, nearly 40 percent of Canada’s emissions came from just 563 individual operations, mainly power plants, refineries and cement plants.[6] They should be contributing their fair share towards our global commitments to slash GHG emissions.[7]  Instead, those big polluters located in provinces that have refused to create their own carbon tax will have a special rate based on a complex pricing mechanism using energy intensity and an average of industry emissions.

The OBPS exemption cannot be viewed as anything other than a subsidy. Since 2009, successive governments have promised to phase out fossil fuel subsidies, a goal supported by the International Energy Agency and the OECD’s 2017 environmental performance review of Canada.[8] The OBPS could create additional inefficiencies in our economic system if the exemption is applied too broadly. Without a genuine threat of carbon leakage, a facility effectively receives a free allocation and has little incentive to reduce its emissions. The Canadian Chamber of Commerce warned that exempting certain sectors from carbon pricing will distort the economy. Rather, “sectors should bear similar tax treatment to encourage the best allocation and profitable use of resources in the economy.”[9]

Carbon pricing is a way to correct for such market distortions. Failing to internalize externalities is the only way that our society has been willing to treat dumping carbon pollution into the atmosphere as if without cost. Placing a price on carbon is an important first step. Following through on the promise, not yet fulfilled, to eliminate fossil fuel subsidies is also essential. But taken together, eliminating market distortions and placing a price on carbon are not sufficient to meet the weak Harper target, much less the essential goal of holding global average temperature increase to no more than 1.5 ˚C – the Paris target.

Accounting for Trade Competitiveness and Carbon Leakage

Trade competitiveness and carbon leakage have been advanced as the arguments for an output-based pricing system. But if you look you will find that very few countries and jurisdictions are turning a blind eye to emissions. China, the world’s largest emitter of greenhouse gases and a key trading partner with Canada, launched its carbon market last December. Even in the U.S., 30 states are refusing to waver from the Paris target in spite of a regression in federal policy.

If the government is determined to go through OBPS, then the allocations should be targeted and temporary, administered to industries that can demonstrate true competitiveness concerns due to carbon pricing only. Dave Sawyer and Seton Stiebert point out that only 5% of the national GDP stems from Emissions-Intensive-Trade Exposed sectors.[10] It should be made clear to these sectors that the exemptions will be phased out over time in exchange for absolute caps as Canada and the world approach regulatory equivalency. Sawyer and Stiebert caution that in the absence of detailed scientific study, industry has the information-advantage in negotiations over performance standards. They will fight hard for a weaker benchmark. I can only imagine that the government’s ongoing review of emissions-intensive, trade-exposed sectors will serve to redress this information imbalance. I propose that in the interim, the government consider increasing the threshold of emissions to qualify for the OBPS from 50 kilotonnes CO₂ to 100 kilotonnes. This would match Alberta’s model, the blueprint for the government’s plan.

In anticipation of the regulatory framework for the OBPS, I ask along with Clean Energy Canada for a clear definition of “Best-in-Class” performance. This standard must be rigorous from the start, growing more stringent with every year, reviewed regularly and communicated transparently. I also recommend that consultation with specific sectors about their OBA’s should begin with the assumption of global top-decile performance, lowering to top quartile where they can prove a valid risk of carbon leakage.

Allocations should be reviewed regularly. For 2020, we should engage in a comparison of international best practices for addressing competitiveness. On behalf of the Green Party of Canada, I advocate for a thorough study of border adjustments as a replacement to the OBPS. A study of flexible regulations issued by Simon Fraser University isalso be worth a closer look. They found that flexible regulations (e.g., average emissions sectoral caps and niche market regulations for emerging green industries) combined with a low carbon levy of $40/tCO₂ could produce effects similar to an across-the-board carbon price that started at $30 and rose to $200 by 2030. Worth mentioning is that their model assumed a less stringent standard for industry and a 100Mt cap on the oil sands with no additional regulations. I highlight one of their conclusions:

While emissions pricing and flexible regulations might be considered substitutes in the early stage of the energy transition, the regulations create favorable conditions for a greater reliance on emissions pricing in later stages, as low- and zero-emission technologies and energy forms achieve economies of scale in production and greater consumer acceptance through the process of competition, innovation, adoption and market feedbacks. Emissions pricing is easier when consumers have desirable market options for avoiding the tax or permit allowance cost.[11]

In this way the study echoes the Canadian Chamber of Commerce, which argued that any carbon pricing program to effectively decrease GHG emissions depends on “the speed of developing, commercializing and deploying low and near-net-zero carbon energy technologies, as well as technologies that increase end-use energy efficiency.”[12] Canada needs a well-coordinated effort to help fledgling clean energy industries achieve market penetration, a phenomenon that takes decades to have maximal impact. We can do far more than is being currently contemplated to de-carbonize the electricity sector and to pave the way for a fleet of zero-emissions vehicles. There is more that this administration can do to be a leader in this country, more that Canada can do to be a leader worldwide.

Conclusion

By the government’s own accounting in its most recent filing with the UNFCCC, Canada is not on track to meet its 2030 target. The report says that it will make up for the anticipated 66 Mt gap through investment in transit, strategic R & D, and carbon storage. Missing here is the crucial commitment to drastically cutting supply-side measures – we must leave fossil fuels in the ground. Petronas LNG, for example, would have had 3 billion tonnes of CO₂ over thirty years had it not been cancelled.[13] The OECD report from December stressed the importance of Canada reducing its carbon intensity – the second highest among OECD countries – rapidly, especially by phasing out the oil sands. Key among its other recommendations: the timely implementation of the Pan-Canadian Framework, phasing out inefficient fossil fuel subsidies by 2025, revisiting levies on fuel-inefficient vehicles to incentivize low-emission products, and pressing ahead with the Canada-U.S. commitment to reducing methane from oil and gas sector, with or without the U.S.

The science tells us the window is closing – and fast – for holding global temperatures below a 1.5˚C increase. Canada must stop congratulating ourselves for measures heroic only when compared to the ten years under Harper. Canada must start doing what is all the more necessary after that awful decade to make our planet liveable for generations to come.

A lot of people around the world would like to see Canada be a real climate champion, and I believe this can happen. This is not the time to shy away from ambition. We can lead with our carbon pricing scheme – let us get tough on emissions targets, show we do not let polluters off easily, and set a real program to decarbonize our economy and save our planet.

Thank you for your consideration.

With thanks,

Elizabeth May, O.C.
Member of Parliament
Saanich – Gulf Islands
Leader of the Green Party of Canada

A PDF copy of the original version is available here.

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“In 2009, Stephen Harper announced Canada’s climate commitments at Copenhagen, but never put in a plan to reach these targets by 2020. If we had started working on this in 2009, we may have achieved them; now we are way behind. Once again, Stephen Harper has no clear plan to reach the targets he announced; when asked if the Conservatives would consider international carbon credits to make up for the shortfalls in their plan, Environment Minister Leona Aglukkaq refused to answer and walked away from the press conference.

“We can do better than 30%, but we will not achieve the goal of lowering Canada’s emissions through provincial action alone, nor will methane regulations get us there. We need to stop subsidizing fossil fuels, ensure a manageable carbon pricing strategy, which covers all of our economy, and invest in infrastructure and serious energy productivity improvements.

“I challenge Stephen Harper to release the details for his plan to all Canadians; until he does so, his plan is merely a public relations strategy and simply not credible.”

Bruce Hyer, Deputy Leader of the Green Party of Canada and MP (Thunder Bay – Superior North), continued:

“Stephen Harper’s strategy to pull unrealistic numbers out of the air and claim credit for provincial targets is disappointing to many Canadians, who had hoped to see Canada take a leading role in the fight against climate change; it is not surprising though, given that he has abandoned any leadership on climate change since taking office in 2006.

“The Green Party has a realistic climate strategy that we can achieve through revenue-neutral pricing on the largest sources of emissions. Our plan, called a Carbon Fee and Dividend, will help to reduce income inequality and greenhouse emissions simultaneously. Canadians know they can look to the Green Party for clear direction in the fight against climate change and our plan is a clear example of this leadership.”

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The magnitude of the carbon crisis is such that every possible tool needs to be available to policy makers as they craft their response.

The issue of carbon pricing is intensely polarized in Canada.

This panel projected forward and addressed the challenges and opportunities in moving beyond such polarization to develop a more constructive dialogue around carbon, climate and our energy future.

They discussed how carbon pricing can be brought back into the stable of acceptable policy options at a federal level.

http://canada2020.ca/event/the-canada-we-want-carbon-pricing/

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4:30 p.m. – Green Leader Elizabeth May will participate in the Canada 2020 Speakers Series on “How to sell carbon pricing to Canadians.”

Château Laurier 1 Rideau Street Ottawa, Ontario

NOTES: Other panelists are:

• Former Quebec Premier Jean Charest;
• Former U.S. Congressman Bob Inglis ;
• Kathryn Harrison, Professor of Political Science, University of British Columbia ;
• Eric Newell, Chair of Alberta’s Climate Change and Emissions Management Corporation, former Chancellor of the University of Alberta.

Live webcast at www.canada2020.ca/live.

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Shell’s Lorraine Mitchelmore is reported as saying Canada “will need a carbon price” (President Of Royal Dutch Shell Canadian Division Urges Carbon Pricing – Report on Business, Sept. 11).

This is not the first time Shell has taken this position, nor is it the only oil giant to do so. Natural Resources Minister Joe Oliver immediately rejected the call for carbon pricing.

It is often claimed that Prime Minister Stephen Harper and his cabinet are in the pocket of the oil industry. If only.

Elizabeth May, Leader, Green Party of Canada

View the full original article >>

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Now that the Senate of Canada, the corporate lobby in the Council of Chief Executives, and the premiers are all willing to talk about the need for a national strategic energy vision, perhaps there is some hope that we can, at long last, have a plan. For years, Canada has been the only country in the OECD with no energy strategy. That failing has meant that, de facto, our energy strategy was whatever the oil patch wantedor more precisely what foreign owned energy multinationals decreed.

No wonder we still import foreign oil at world prices to half the country while shipping out Canadian oil at lower prices to the U.S. market. No wonder we have no climate plan, subsidize oil and gas, and have no carbon pricing (other than due to provincial action in British Columbia, Alberta, and Quebec).

Nationally, despite the Prime Minister’s crowing about Canada being an “energy superpower,” we are establishing ourselves as a compliant resource colony for the United States and China.

Now that we are talking about having a national energy plan, what are those core principles that could form the beginning of a national consensus?

Let’s start with energy sovereignty. We should ensure that we control our own resources. Foreign state-owned corporate control over Canadian energy resources should be scrupulously vetted for national security and sovereignty risk. Such scrutiny is particularly important when the state-owned enterprises are attached to undemocratic regimes. China’s brand of Capitalistic Communism, with human rights repression and downward pressure on environmental regulations, requires particular review.

When we look at our energy future, a key goal should be to structure planning around demand-side management. We need to develop our energy planning with the goal of doing more with less. Canada’s built infrastructure, whether residential, business or institutional, is woefully wasteful and in need of retrofits. We are literally heating and cooling the outdoors. And energy policy should be about more than drilling and scraping out new supply. We need a strategy for wise use of resources.

Next, can we all agree that energy security makes sense? Should we not ensure that Canada has adequate energy resources for our own use before shipping exports overseas? The dependency of Eastern Canada on oil imports from Nigeria, Venezuela, Saudi Arabia, and Kazakhstan makes no sense. Nova Scotia imports coal from Venezuela for its dirty electrical grid. To build energy self-sufficiency, we need to diversify and build capacity in renewable energy for the long-term.

Another principle that would take us out of the resource colony trap will be to ensure that we build “value-added” into our energy exports. Canadian crude should be processed and refined in Canada, at least in sufficient amounts for domestic markets, but for export as well. We have been allowing promising energy developments in renewable energy to be commercialized in other countries. We have export opportunities in value added in petroleum products and also in renewable energy that we are abandoning.

Another key element for a viable energy future is found in diversifying our energy portfolio. Canada has huge potential in renewable energy – wind, solar (both passive and photovoltaic), geothermal, district energy, small scale hydro, tidal and, where sustainable, biomass. So far, our energy conversation seems limited to fossil fuels.

A national energy plan must be designed to meet climate objectives. Any viable energy strategy must start by eliminating all subsidies to fossil fuels and placing a price on carbon. An energy strategy must set out a reasonable plan for capping and reducing greenhouse gases throughout the Canadian economy.

All of this is possible. The largest missing ingredient at the moment is federal leadership. Thus far, Prime Minister Stephen Harper has displayed no enthusiasm for any energy plan other than more than tripling oil sands production to six million barrels of oil a day. While B.C. Premier Christy Clark and Alberta Premier Alison Redford clash over Enbridge’s proposed risky pipeline and supertanker scheme to Kitimat, Harper is firmly on the side of one governmentthe one in Beijing.

If we are to have a national energy strategy, it has to start with an effort to build consensus. Ideally, it will provide a vision that advances the needs and aspirations of all parts of Canada. An energy plan should have at its core that it meets the needs of all of Canada while building our common wealth. That might just get everyone around the table.

Green Party Leader Elizabeth May represents Saanich-Gulf Islands, B.C.
Originally published in the Hill Times.

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