Climate Change in Canada: The policy and politics Matt Horne Director, Climate Change Program February 8, 2012

Overview Background The federal government response The provincial government response Where does Canada go from here

Federal / Provincial Jurisdiction

The economics of climate change The costs of solving the problem are real, but manageable (2 to 3% of GDP) The costs of inaction are steeper (5 to 25% of GDP without accounting for social/env costs)

Canada’s Greenhouse gas emissions (millions of tonnes CO2e)

Greenhouse gas emissions (millions tonnes CO2e in 2009)

Greenhouse gas emissions (change 1990 to 2009 in millions of tonnes)

The federal government response: inaction Source: Nic Rivers, University of Ottawa

Some reasons/excuses for the inaction Disconnect between problem and solutions Lack of willingness to pay Lack of interest/belief in the problem The need to harmonize with the U.S. Opposition from provinces and industry

Provincial leadership filling the void

Targets starting to be backed by policies B.C.’s carbon tax and ban on coal-fired generation Ontario’s feed-in-tariff and coal phase-out Quebec cap-and-trade

Different interpretations of provincial leadership “A race to the top will help the country” “The patchwork approach is inefficient” “Canadians can live with strong policies”

Canadian perspectives on carbon pricing Source: Additional carbon tax polling:

Where is Canada in 2012? The positive steps we’ve seen shouldn’t mask the scale of challenge still facing the country The level of national ambition is still inadequate The collective policy response still falls short of stated ambition Serious federal/provincial fault lines still exist

Details:

The level of national ambition is still inadequate The collective policy response still falls short of stated ambition Serious federal/provincial fault lines still exist For more information:

An illustration of tension: Alberta’s projected emissions Evidenced in debates about: pipeline proposals, low carbon fuel standards, a national energy strategy, a national climate policy

Where does Canada go from here? Will the province’s continue to advance policies? Will the federal government start taking serious action? Will tensions around oil exports increase? Will international pressure increase? Will Canadians make climate change an issue politicians can’t ignore?

Thank you Matt Horne x 223

Carbon pricing 101 Why price carbon: Our decisions about energy have not historically considered the resulting contribution to climate change The sources of the problem are widespread and not easily matched with command and control regulations Economic efficiency is maximized because emitters undertake the least expensive emission reductions Two main approaches to pricing carbon: Carbon taxes Cap-and-trade systems

Carbon pricing 101 Some questions to enable an apples-to-apples comparison between approaches: What is the price and how does it get set? The higher the price, the stronger the incentive to reduce emissions. How broadly is the price applied? The broader the coverage, the more opportunities to encourage reductions. What are the potential problems/loopholes? Loopholes undermine effectiveness and public support. How much revenue is raised and how is it used? No magic formula, but revenue is an important tool for dealing with equity concerns and making investments in projects that reduce emissions.

Carbon pricing 101 Carbon taxCap-and-trade Setting the priceSet by governmentCombination of number of allowances, offsets, price floors and ceilings Setting the coverageUp to about 80% of Canadian emissions Direct coverage up to about 80% with remaining 20% potentially through offsets Potential problemsGaps in coverage and different rates Gaps in coverage, low-quality offsets, over allocation, free allocation Determining revenue raised by government Tax rate multiplied by emissions covered by tax Depends on how allowances are distributed and how many offsets are allowed Revenue usesDetermined by government

A Comparison of Canada’s two carbon pricing systems B.C.’s Carbon TaxAlberta’s SGER Price- $30 per tonne- $15 per tonne (maximum) Percentage of economy covered - 77%- 50% Problems- Non-combustion emissions - Non-additional offsets - No impact on production Revenue- $1.2 billion per year for tax cuts and low-income tax credits - $74 million per year for GHG reduction projects For more information: