Ottawa will have to lead a massive restructuring of the Canadian economy, with wealth flowing from the West to the rest of the country, if it is to meet its climate-change targets, a landmark report has concluded.
The Conservative government's goal of reducing greenhouse-gas emissions by 20 per cent by 2020 can be achieved, but only by limiting growth in Alberta and Saskatchewan.
This is the finding of a report, financed by the Toronto Dominion Bank and conducted by two environmental organizations, that for the first time offers a detailed regional breakdown of the economic impacts of pursuing a strategy of fighting global warming.
The report, which arrives as nations prepare to meet in Copenhagen to debate future plans to address climate change, is bound to increase tensions between provinces that rely on oil and coal production, which would have to sacrifice economic growth to meet any realistic targets, and Central Canada, which would be less affected and might even benefit.
Either through direct taxation or by capping emissions and forcing companies to buy allowances, the federal government would receive approximately $46-billion or more in revenues, which it would redistribute through spending and personal tax cuts.
In that event, Alberta's economy would be 8.5 per cent smaller in 2020 than projected under an unconstrained scenario, though it would continue to lead the country in growth through the decade, and the province would provide as much as $5-billion more in revenue than it would receive back.
The uneven regional impacts vividly illustrate Ottawa's political challenge in implementing the government's own relatively modest climate-change aspirations. In addition to the effects on Alberta, Saskatchewan would lose 2.8 per cent from its potential output. Ontario and Quebec would come out virtually unscathed, and employment growth would actually be higher in Central Canada.
The Harper government would have to move aggressively and quickly, with a range of highly interventionist policies not now planned, just to meet targets that opposition parties and environmentalists decry as too timid, the study concludes.
Meeting the more stringent standards recommended by environmentalists and many scientists would impose even more onerous burdens. Nonetheless, the report stresses, both sets of goals could be met while still preserving economic growth throughout the decade.
"While addressing climate change in Canada is certainly not going to be as easy as changing our light bulbs, it won't be as bad or economically difficult as some fear-mongers have been saying," said Pierre Sadik, director of government relations for the David Suzuki Foundation. And it pales, he said, in comparison to the environmental and economic impact of unchecked emissions growth.
The TD Bank financed Calgary-based Pembina Institute and Vancouver's David Suzuki Foundation to produce the comprehensive report. The group contracted with respected economic consultants, M.K. Jaccard and Associates Inc., to model the impacts of climate policies; Jaccard has done similar work for the Canadian government.
TD's chief economist, Don Drummond, said the bank has not endorsed any targets, though it has supported a policy of a national emissions cap. He said the bank's interest was to shed light on an area where there has been little informed debate: the likely cost of imposing regulations.
Despite the steep costs involved in meeting targets, the analysis concludes the Canadian economy would continue to grow, albeit at a slower pace, and that investment in renewable energy and efficiency measures would result in an overall increase in employment compared to a "business-as-usual" scenario.
And even with the significant reduction in Alberta's potential growth and employment prospects, the province would still lead the country economically over the next 10 years.
The Pembina/Suzuki study advocates pursuing deeper emission-reduction targets than the Harper government proposes, ones that environmentalists say would be consistent with Canada's international obligations.
To meet the more ambitious target of reducing emissions by 25 per cent from 1990 levels, Ottawa would impose $72-billion worth of emission levies. By way of comparison, the federal corporate income tax brought in $40-billion in revenue last year.
And while Alberta would be a net loser, analysts from Pembina and Suzuki argue that gap could be closed by rebalancing equalization and other federal programs.
The government's commitment would require an effective carbon price of $100 a tonne by 2020, while the steeper reductions urged by the environmental groups would need a carbon price of $200 a tonne by that date, the study says. Ottawa has estimated carbon prices would be $50 a tonne by 2020.
Pembina climate researcher Matthew Bramley said Ottawa has to move far more urgently than it has to date if it intends to meet its own targets.
"We would be not even close" to meeting the 2020 goal with the current policy direction that the government has announced, Mr. Bramley said.
The Conservative government says it wants to wait for the results of the Copenhagen meeting and for the United States to finalize its climate-change policies before unveiling its own approach.
In addition to the large, regional transfer of wealth, Canada would have to spend up to $5-billion to purchase international emission credits, or face even higher costs at home. The Harper government insists that virtually all of Canada's effort will involve domestic action.