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(MARK RALSTON/AFP/Getty Images)
(MARK RALSTON/AFP/Getty Images)

Economy Lab

Liberals' significant climate plan cloaked in silence Add to ...

The Liberal Party's key climate change policy announcement, and by far the most important environmental position taken thus far in the campaign, was buried on page 46 of its policy platform.

You are forgiven if you missed it since Michael Ignatieff did not mention it once. In fact, when asked a direct question on the Liberal Party's policies on climate change, he listed removal of oil sands tax credits and a re-vamped green tax credit program.

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He did not mention that the Liberals have committed to an aggressive cap-and-trade program which would, "set a ceiling on the total amount of permissible greenhouse gas emissions by large industrial facilities." By not discussing this policy at all, the Liberals have left many key questions unanswered.

The first question that needs to be answered about this policy is where the ceiling is set. The Liberal plan is vague on targets, but does state that they would commit to reducing emissions to, "80 per cent below 1990 levels by 2050."

This would cut Canada's emissions to 118 million tons (Mt) a year by 2050, which is significant given that our 2008 emissions were 734 Mt. With all of the current policies in place federally and provincially, Environment Canada estimates that our emissions will reach 785 Mt by 2020. In other words, getting on track to meet the Liberal party's goals would require a significant change of course.

Cap-and-trade systems turn emissions rights into scarce, and thus valuable, property. The greater is the scarcity, the higher is the value. The Liberals stated that they would defer to the National Roundtable on the Environment and the Economy (NRTEE), "to recommend a series of science-based, achievable midterm targets", so let's use NRTEE numbers to benchmark what this policy might mean in terms of scarcity and prices.

A recent NRTEE report showed how a cap-and-trade program, combined with some other measures, could get us on track to achieve such deep cuts. Under their cap-and-trade program, emissions permits trade at about $75/ton by 2020. The Pembina Institute's Climate Leadership plan, which avoids the purchase of international permits to reduce domestic prices, suggests that prices for the right to emit GHGs would be much higher - $145 per ton by 2020. Valuable property, indeed.

This leads to the second key question for any cap-and-trade program, which is how these valuable emissions permits would be distributed. The Liberal platform says that they would, "auction off emission permits to companies." We don't know exactly who would be included, but an industrial cap-and-trade program would likely apply to about 60 per cent of Canada's GHG emissions. If this were the case, the annual auction of permits could be worth about $30-billion dollars ($75/ton times about 400 million tons of industrial permits) by 2020. To put that into context, that's about 15 per cent of total federal government revenue today.

Given that this policy will generate significant revenue if implemented, the next natural question is how (and where) that money will be spent. It's easy to assume that this policy will be advantageous for high-population regions like Ontario and Quebec and disadvantageous to regions like Alberta and Saskatchewan with high emissions per capita. That simply is not true. A C.D. Howe Institute report published last November showed what should be obvious -- the regional cost of GHG emissions policy depends critically on both where you spend the money it generates and where the emitting facilities are located. The collection will clearly occur from large emitters, but the spending has thus far been left to our speculation.

The cap-and-trade system contemplated by the Liberals would likely be the most significant economic policy adopted in Canada since NAFTA. It is certainly the most significant policy brought forward by any party in this election campaign. If the Liberals are truly committed to this policy, they would be well served to define the key elements much more carefully, lest someone else do it for them and force us all to endure a repeat of the "tax on everything" discussion.



Andrew Leach is an Assistant Professor at the Alberta School of Business. He blogs on energy, environment, and oilsands issues at http://www.andrewleach.ca and is on Twitter @andrew_leach

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