1. Nic Rivers Simon Fraser University Federal and provincial climate change policy: Repeating past mistakes? Nic Rivers Queen’s Institute of Intergovernmental Relations October 17-18, 2008

2. Nic Rivers Simon Fraser University Outline 1.Lessons from Canada’s climate change history 2.Current provincial and federal greenhouse plans a.Emission reduction targets b.Emission reduction policies 3.How to structure an integrated approach to climate policy in Canada

3. Nic Rivers Simon Fraser University 1. LESSONS FROM CANADA'S CLIMATE CHANGE HISTORY

4. Nic Rivers Simon Fraser University Canada’s Climate Change Timeline 0 100 200 300 400 500 600 700 800 900 19901995200020052010 Canadian GHG Emissions (Mt CO 2 e) G7, Rio (1992) World Conference on Changing Atmosphere (1988) Kyoto (1997) Green Plan National Action Program Action Plan 2000 Project Green Climate Change Plan for Canada Turning the Corner Source: Environment Canada, 2008, “Canada’s Greenhouse Gas Inventory, 1990-2006”.

5. Nic Rivers Simon Fraser University Why we failed to reduce emissions Near-complete reliance on voluntary programs and modest subsidies – Voluntary programs have failed because significant GHG abatement is costly – Subsidies have failed because of free-ridership, rebound effect, and limited government spending ability – Both represent a piecemeal approach that only covers a fraction of total emissions No broad carbon price or cap was applied Policies were not consistent with targets

6. Nic Rivers Simon Fraser University Kyoto Analysis Kyoto Protocol reflects 20-30 percent reduction from ‘business as usual’ emissions for Canada/US In 2000, various models were used to estimate economy-wide GHG price required for reaching Kyoto targets: – For Canada CIMS: C$120/t CO 2 Rutherford: C$102/t CO 2 MARKAL: C$50/t CO 2 SGM: C$160/t CO 2 ABARE: C$250/t CO 2 BMRT: C$71/t CO 2 – For the US MIT: C$120/t CO 2 EIA: C$157/t CO 2 EPRI: C$127/t CO 2 PNNL: C$100/t CO 2 CRA: C$133/t CO 2 WEFA: C$120/t CO 2 – On average: over $100/t CO 2 – In contrast, we considered (but did not implement) a carbon price of $15/t CO 2 on a subset of emissions Source: Wigle, R., 2001, “Sectoral Impacts of Kyoto Compliance”, Industry Canada. Natural Resources Canada, 2001, Analysis and Modeling Group Roll-up Report.

7. Nic Rivers Simon Fraser University What we learned (or should have) Significant reduction in emissions requires stringent policies It is difficult to reduce emissions quickly Voluntary policies and subsidies are unlikely to significantly reduce emissions Fragmented policies (covering only a subset of emissions) will not reduce overall emissions

8. Nic Rivers Simon Fraser University 2. CURRENT PROVINCIAL AND FEDERAL CLIMATE CHANGE PLANS

9. Nic Rivers Simon Fraser University Comparison of emission targets Source: Environment Canada, 2008, “Canada’s Greenhouse Gas Inventory, 1990-2006”. Bollinger, J. & Roberts, K., 2008, “Building on our Strengths”, Canada West Foundation. Various provincial climate change plans. Western Climate Initiative.

10. Nic Rivers Simon Fraser University Comparison of emission forecasts Source: Environment Canada, 2008, “Canada’s Greenhouse Gas Inventory, 1990-2006”. Natural Resources Canada, 2006, “Canada’s Energy Outlook”.

11. Nic Rivers Simon Fraser University Required emission reduction to meet mid-term (2020) targets Increasing Policy Stringency Source: Calculations.

12. Nic Rivers Simon Fraser University Source: Calculations using CIMS model. Marginal abatement cost curves

13. Nic Rivers Simon Fraser University Marginal abatement cost curves Source: Calculations using CIMS model.

14. Nic Rivers Simon Fraser University Estimated marginal cost of targets Source: Calculations using CIMS model.

15. Nic Rivers Simon Fraser University Existing and forthcoming emission pricing policies RegionTypeWhenFlexibility MechanismsCoverage British ColumbiaCarbon tax ($10  $30 / tCO 2 ) Absolute cap and trade (WCI) 2008 2012/2015 None Limited offsets ~70% ~50/80% AlbertaIntensity cap and trade (12% intensity reduction) 2007Unlimited domestic offsets; unlimited technology fund at $15/t CO 2 ~55% SaskatchewanNoneNA ManitobaAbsolute cap and trade (WCI)2012/2015Limited offsets~50/80% OntarioAbsolute cap and trade (WCI)2012/2015Limited offsets~50/80% QuebecCarbon tax ($3 / tCO 2 ) Absolute cap and trade (WCI) 2007 2012/2015 None Limited offsets ~70% ~50/80% New BrunswickNoneNA Nova ScotiaNoneNA Prince Edward Isl. NoneNA NewfoundlandNoneNA CanadaIntensity cap and trade (18% intensity reduction by 2010 + 2%/yr) 2010Limited technology fund at ~ $20/t; unlimited domestic offsets ~50% Source: Provincial and federal climate change plans. “Highlights of Provincial Greenhouse Gas Reduction Plans”, 2008, Pembina Institute

16. Nic Rivers Simon Fraser University Déjà vu, all over again? Policies proposed by governments appear to be significantly below the stringency required to meet targets In addition, key policies only cover a subset of emissions and are uncoordinated Much focus has been on targets rather than policies Targets are already very challenging to meet; further delay in policy implementation implies that targets will be impossible to meet at a reasonable cost

17. Nic Rivers Simon Fraser University 3. FEDERAL-PROVINCIAL ISSUES IN CLIMATE POLICY

18. Nic Rivers Simon Fraser University Recommended policy for deep GHG abatement Climate change policy is currently fragmented between provincial and federal levels, and only covers a subset of emissions in most provinces Almost all analysts recommend an economy-wide carbon pricing policy for effective and efficient GHG reductions – Cap and trade (upstream, not just large emitters) – Carbon tax This recommendation is complicated by Canada’s governance and economic structure

19. Nic Rivers Simon Fraser University Comparison of per-capita emissions Source: Environment Canada, 2008, “Canada’s Greenhouse Gas Inventory, 1990-2006”.

20. Nic Rivers Simon Fraser University Alternative policy approaches FederalProvincial/Federal TaxFederal government determines tax level, collects revenue, and chooses how revenue is spent Example: Norway, Denmark, Liberal “Green Shift” Federal government imposes minimum carbon tax; provinces can meet or exceed federal tax in order to collect revenues Example: ? Cap and tradeFederal government sets overall emission cap, allocates permits, determines covered sources Example: US SO 2 program Federal government sets overall emission cap, distributes burden amongst provinces; provinces allocate permits, determine covered sources Example: EU ETS, WCI

21. Nic Rivers Simon Fraser University Federal carbon tax Price set federally Revenue collected federally Proceeds from carbon tax distributed by federal government Pros: economic efficiency, administrative simplicity Cons: difficult politically

22. Nic Rivers Simon Fraser University Provincial carbon tax Minimum price set federally (equivalency agreement) Provinces can exceed minimum price if desired Pros: – All revenue collected provincially (provided provincial tax is implemented) – May be more politically palatable by avoiding revenue transfers Cons: Administratively more complex

23. Nic Rivers Simon Fraser University Federal cap and trade Federal government determines cap, covered sources, and permit allocation Federal government decides on flexibility mechanisms (offsets, safety valve, borrowing) Pros: improved economic efficiency from linked systems Cons: potentially significant interprovincial wealth transfers

24. Nic Rivers Simon Fraser University Provincial cap and trade Federal government determines overall cap and covered sources Burden for GHG reductions is shared amongst provinces Provinces allocate permits amongst sources Pros: permit allocation is done by provincial governments to reflect provincial circumstances; less interprovincial wealth transfer Cons: overall economic efficiency could be reduced because of non-coordinated allocation of emission permits; allocation of provincial burden would be difficult

25. Nic Rivers Simon Fraser University Conclusions It appears unlikely that currently proposed policies will be sufficient to meet provincial and federal GHG targets Most provincial and federal 2020 targets probably cannot be met in the short time left with politically realistic policies Regional issues complicate climate policy in Canada, but designs can accommodate these issues Policy designs can allow significant provincial participation, but federal government leadership is key to any successful design