Andrew Leach is an economist and associate professor at the Alberta School of Business, University of Alberta. He served as chair of Alberta's climate leadership advisory panel.
Prime Minister Trudeau has announced a national price on greenhouse gas emissions starting at $10 a tonne in 2018 and rising to $50 a tonne in 2022. This is one piece of the Liberals' ambitious agenda on climate change policy. Of course, implementing such policies is more difficult than announcing them. This plan is ambitious and complex, with many details to be clarified. But it should refocus our national discussion on actual policies, which will be better than talking about hypothetical targets.
The national price sets a minimum standard to be met or surpassed by provincial policy – Ottawa will impose it only if provinces do not act, and will return all proceeds to the provinces. Provinces that impose a price equal to or greater than the federal minimum – via a carbon tax or hybrid policy, or through cap-and-trade – will not see additional federal carbon pricing. Perhaps even Saskatchewan Premier Brad Wall will decide that a carbon tax combined with a 50-per-cent reduction in the personal provincial income tax – as University of Calgary economist Trevor Tombe has calculated would be feasible – would be preferable to fighting Ottawa to preserve inaction on climate change.
In addition to the carbon price floor, Ottawa will also update regulatory measures across the economy to meet our national target of lowering emissions to 30 per cent below 2005 levels by 2030. That will be tough: Simon Fraser University's Mark Jaccard, Mikela Hein and Tiffany Vass recently found that, without incremental regulatory actions, carbon prices alone would have to rise to more than $200 a tonne, plus inflation, by 2030 to meet these targets. The 2030 target was found to be achievable with carbon prices lower than those proposed by Ottawa, but only by adding a suite of stringent regulations across the economy.
The reliance on a hybrid plan will carry a price. Economists (and the Trudeau government) like carbon pricing because it generates the lowest economic costs of emissions reductions. However, this cost-effectiveness condition only holds for a common, broadly applied price, which the Liberal plan will not impose. Since the plan allows provinces either to impose quantity goals or to impose a carbon price, prices across provinces will remain different. By 2022, a driver in Alberta or B.C. might face a carbon price two or more times higher under price-based policies than a driver in Ontario under that province's cap-and-trade program. Ottawa could improve on this by extending its price floor to regions with cap-and-trade programs as well.
While setting a minimum carbon price sounds easy, assessing the equivalency of provincial policies and actions will be daunting. Provinces will also be seeking recognition for previous actions, as Saskatchewan is for investment in carbon capture and storage, and both Newfoundland and Labrador and Nova Scotia have claimed for the Muskrat Falls hydro project. The further Ottawa goes in allowing exemptions, exceptions, and special treatment, the further we'll end up from a harmonized, national price and the more stringent policies we'll need to meet our target.
The first major test of the plan will come when Ottawa rules on the Trans Mountain pipeline expansion. The government must (and I believe can) convince Canadians of the case for oil-sands growth coincident with action on climate change in Canada and globally. While that case gets more difficult as oil prices remain low, or more stringent targets are applied, most analysis shows that oil production from new facilities will be required even as the world acts aggressively on climate change. If the government is able to convince Canadians that resource development undertaken with its carbon policies in place is in the national interest, and that Canada should be able to compete for a share of global resource market while pushing for action on climate change, it will gain strong allies for its policies in Alberta.
Finally, despite the plan's ambitions, many are calling for more stringent policies or deeper reduction targets. We also have a 25-year history in Canada of ratcheting up targets so that even stringent policies look like a failure. Perhaps we should try a different course: Focus on policies, argue for them to be tightened if you see fit, but let's avoid falling into another target trap.