Download Federal and Provincial Climate Change Policy in Canada

Federal and provincial climate
change policy: Repeating past
mistakes?
Nic Rivers
Queen’s Institute of Intergovernmental Relations
October 17-18, 2008
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
Nic Rivers
Simon Fraser University
1. LESSONS FROM CANADA'S
CLIMATE CHANGE HISTORY
Nic Rivers
Simon Fraser University
Canada’s Climate Change Timeline
Canadian GHG Emissions (Mt CO2e)
900
800
Green
National
Action
Program
Action
Plan
2000
Climate
Change Plan
for Canada
Project
Green
Turning the
Corner
700 Plan
600
G7, Rio
(1992)
500
400
Kyoto
(1997)
World Conference
on Changing
Atmosphere (1988)
300
200
100
0
1990
Nic Rivers
Simon Fraser University
1995
2000
2005
2010
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
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 CO2
• MARKAL: C$50/t CO2
• ABARE: C$250/t CO2
– For the US
• MIT: C$120/t CO2
• EPRI: C$127/t CO2
• CRA: C$133/t CO2
Rutherford: C$102/t CO2
SGM: C$160/t CO2
BMRT: C$71/t CO2
EIA: C$157/t CO2
PNNL: C$100/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
Nic Rivers
Simon Fraser University
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
Nic Rivers
Simon Fraser University
2. CURRENT PROVINCIAL AND
FEDERAL CLIMATE CHANGE PLANS
Nic Rivers
Simon Fraser University
Comparison of emission targets
Nic Rivers
Simon Fraser University
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
Nic Rivers
Simon Fraser University
Source: Environment Canada, 2008, “Canada’s Greenhouse Gas Inventory, 1990-2006”.
Natural Resources Canada, 2006, “Canada’s Energy Outlook”.
Increasing Policy Stringency
Required emission reduction to meet
mid-term (2020) targets
Nic Rivers
Simon Fraser University
Source: Calculations.
Marginal abatement cost curves
Nic Rivers
Simon Fraser University
Source: Calculations using CIMS model.
Marginal abatement cost curves
Nic Rivers
Simon Fraser University
Source: Calculations using CIMS model.
Estimated marginal cost of targets
Nic Rivers
Simon Fraser University
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)
2008
2012/2015
None
Limited 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)
2007
2012/2015
None
Limited 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%
Nic Rivers
Simon Fraser University
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
Nic Rivers
Simon Fraser University
3. FEDERAL-PROVINCIAL ISSUES IN
CLIMATE POLICY
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
Nic Rivers
Simon Fraser University
Comparison of per-capita emissions
Nic Rivers
Simon Fraser University
Source: Environment Canada, 2008, “Canada’s Greenhouse Gas Inventory, 1990-2006”.
Alternative policy approaches
Federal
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
revenues
Example: ?
Cap and trade
Federal government sets overall
emission cap, allocates permits,
determines covered sources
Example: US SO2 program
Federal government sets
overall emission cap,
distributes burden amongst
provinces; provinces allocate
permits, determine covered
sources
Example: EU ETS, WCI
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
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
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
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
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
Nic Rivers
Simon Fraser University