nic rivers simon fraser university federal and provincial climate change policy: repeating past...

Nic RiversSimon Fraser University

Federal and provincial climate change policy: Repeating past

mistakes?Nic Rivers

Queen’s Institute of Intergovernmental RelationsOctober 17-18, 2008


Outline

1. Lessons from Canada’s climate change history

2. Current provincial and federal greenhouse plans

a. Emission reduction targetsb. Emission reduction policies

3. How to structure an integrated approach to climate policy in Canada


1. LESSONS FROM CANADA'S CLIMATE CHANGE HISTORY


Canada’s Climate Change Timeline

0

100

200

300

400

500

600

700

800

900

1990 1995 2000 2005 2010

Cana

dian

GH

G E

mis

sion

s (M

t CO

2e)

G7, Rio (1992)

World Conferenceon ChangingAtmosphere (1988)

Kyoto (1997)

GreenPlan

NationalActionProgram

ActionPlan2000

ProjectGreen

ClimateChange Planfor Canada

Turning the Corner

Source: Environment Canada, 2008, “Canada’s Greenhouse Gas Inventory, 1990-2006”.


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


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 CO2 Rutherford: C$102/t CO2

• MARKAL: C$50/t CO2 SGM: C$160/t CO2

• ABARE: C$250/t CO2 BMRT: C$71/t CO2

– For the US• MIT: C$120/t CO2 EIA: C$157/t CO2

• EPRI: C$127/t CO2 PNNL: C$100/t CO2

• CRA: C$133/t CO2 WEFA: C$120/t CO2

– On average: over $100/t CO2

– In contrast, we considered (but did not implement) a carbon price of $15/t CO2 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.


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


2. CURRENT PROVINCIAL AND FEDERAL CLIMATE CHANGE PLANS


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.


Comparison of emission forecasts

Source: Environment Canada, 2008, “Canada’s Greenhouse Gas Inventory, 1990-2006”.Natural Resources Canada, 2006, “Canada’s Energy Outlook”.


Required emission reduction to meet mid-term (2020) targets

Source: Calculations.

Nic RiversSimon Fraser University Source: Calculations using CIMS model.

Marginal abatement cost curves


Marginal abatement cost curves

Source: Calculations using CIMS model.


Estimated marginal cost of targets

Source: Calculations using CIMS model.


Existing and forthcoming emission pricing policies

Region Type When Flexibility Mechanisms Coverage

British Columbia Carbon tax ($10 $30 / tCO2)Absolute cap and trade (WCI)

20082012/2015

NoneLimited offsets

~70%~50/80%

Alberta Intensity cap and trade (12% intensity reduction)

2007 Unlimited domestic offsets; unlimited technology fund at $15/t CO2

~55%

Saskatchewan None NA NA NA

Manitoba Absolute cap and trade (WCI) 2012/2015 Limited offsets ~50/80%

Ontario Absolute cap and trade (WCI) 2012/2015 Limited offsets ~50/80%

Quebec Carbon tax ($3 / tCO2)Absolute cap and trade (WCI)

20072012/2015

NoneLimited offsets

~70%~50/80%

New Brunswick None NA NA NA

Nova Scotia None NA NA NA

Prince Edward Isl.

None NA NA NA

Newfoundland None NA NA NA

Canada Intensity cap and trade (18% intensity reduction by 2010 + 2%/yr)

2010 Limited 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


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


3. FEDERAL-PROVINCIAL ISSUES IN CLIMATE POLICY


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


Comparison of per-capita emissions

Source: Environment Canada, 2008, “Canada’s Greenhouse Gas Inventory, 1990-2006”.


Alternative policy approachesFederal Provincial/Federal

Tax Federal 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 revenuesExample: ?

Cap and trade Federal government sets overall emission cap, allocates permits, determines covered sourcesExample: US SO2 program

Federal government sets overall emission cap, distributes burden amongst provinces; provinces allocate permits, determine covered sourcesExample: EU ETS, WCI


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


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


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


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


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

nic rivers simon fraser university federal and provincial climate change policy: repeating past...

Documents

canada slide

overall emissions slide

environment canada

climate policy

federal climate change

industry canada

canada cims

usual emissions