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Business Commentary Will business have to pay for Quebec’s high-cost carbon strategy?

Environmentalism is the state religion in Quebec, and no politician can risk questioning the faith, even if it means going to unholy lengths to look virtuous. Promoters of the Energy East pipeline counting on a business-friendly Liberal government have instead encountered a de facto foe unwilling to risk voter flagellation by arguing in favour of a potentially nation-building project.

Now, Premier Philippe Couillard's government has proposed carbon reduction targets that his own government quietly concedes can only be met by forcing emitters to buy hundreds of millions of dollars worth of credits annually from California or Ontario. The net reduction in CO2 emissions won't occur in Quebec at all, even if Quebec businesses end up paying for it.

This is one of the lesser-known consequences of the cap-and-trade scheme launched by Quebec and California, which Ontario has promised to soon join. Quebec's government has proposed reducing the province's greenhouse gas emissions by 37.5 per cent below 1990 levels by 2030, a plan it aims to tout at this month's United Nations climate summit in Paris.

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The proposed Quebec target is far more ambitious than the national goal of a 30 per cent reduction in emissions by 2030 set by the former Conservative government. Liberal Prime Minister Justin Trudeau has not said whether he would boost that target and would face resistance from some provinces if he tried.

But Mr. Couillard sees political dividends in appearing greener than green. The hitch is that, for Quebec to meet its 2030 target within its borders, it would need to shut down every aluminum smelter in the province and take millions of conventional cars off its roads. The alternative is forcing emitters to buy credits from California. But at what cost, and to what good?

At about 78 megatonnes, Quebec's carbon emissions were 8 per cent below 1990 levels in 2012. (Ottawa pegs Quebec's emissions at about 82 Mt of CO2 equivalent due to a difference in the way it calculates methane gas emissions.) While Quebec is one province to actually beat its Kyoto protocol target, it's not an entirely good-news story. The reduction stems in large part from the closing of dozens of paper mills, manufacturers and one of the province's three oil refineries. The replacement of older aluminum smelters by less polluting ones also contributed.

The lifting gets much heavier from here on in. The government is counting on a host of carbon mitigation measures and subsidies to reduce the province's emissions by 15 Mt by 2030, but it's anyone's guess how effective they'll be. One such measure involves increasing the number of electric vehicles on Quebec roads to 100,000 by 2020. There are fewer than 8,000 of them now.

It's worth asking whether a government preaching fiscal restraint should be subsidizing the well-heeled buyers of Teslas and Volts, the most popular EV models in Quebec, to the tune of $8,000 a pop. But even if subsidizing EVs has merit, reaching the EV target would reduce emissions by only one Mt a year, according to the association that represents foreign automakers in Canada.

That would be more than offset by the 1.75 Mt generated by a new cement factory now under construction on the Gaspé peninsula. Indeed, the government admits there is no way for Quebec polluters to meet the 2030 target without purchasing credits, or an estimated 10 Mt of emissions annually by 2030, on the open market. That could cost businesses as much as $425-million a year, depending on market prices, according to the Quebec Business Council on the Environment.

Businesses see this as a high-cost strategy that makes the perfect the enemy of the good. Quebec already has the lowest per capita greenhouse emissions on the continent, at half the Canadian and U.S. averages. Almost all of the electricity produced in the province is emissions-free hydro power. Quebec, they say, could do more good for the planet, at a much lower cost, by directing its efforts at helping more carbon-intensive jurisdictions cut their own emissions.

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One way of doing this would be to produce more aluminum, which requires huge amounts of electricity, in Quebec to displace metal that is produced in jurisdictions that rely on coal-generated power. As it is, Quebec's aluminum producers say they will have to put expansion plans on hold to meet their 2030 emissions targets. They insist there is currently no technology available to help them reduce their emissions intensity and that being forced to buy credits (as opposed to the free ones they now get from the government) would hurt their competitiveness.

The aluminum industry is to Quebec what the oil industry is to Alberta. No one would be surprised to see Mr. Couillard accommodate its demands. But any concessions for aluminum producers would mean a greater burden for other sectors – unless Mr. Couillard's government softens the 2030 target or compensates businesses, leaving taxpayers to pick up the tab.

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