If you’ve been following the carbon pricing discussion in the media, you may have the impression that there’s a battle raging in Canada between “cap-and-trade” systems and carbon taxes, with political parties and media pundits choosing one side or the other.

From our perspective, this “battle” is more a question of rhetoric than reality, because the two options are actually quite similar. Either approach can work well if it’s well-designed, and both can fail if they’re not. In fact, some jurisdictions (Norway and British Columbia are two examples) plan to implement both carbon taxes and cap-and-trade systems, combining the two in an effective and complimentary hybrid approach.

Pembina’s backgrounder Carbon Taxes: Key Issues, Key Questions [pubs.pembina.org/reports/carbontaxfactsheetv2.pdf] provides an accessible summary of the “tax or trade” question.

In a nutshell, our conclusion is the environmental and economic effects of a carbon price depend on the emissions price, the sectors it covers, and the way that any revenues the system generates are used. Arguably, those questions matter much more than the choice of cap-and-trade or carbon taxes.

You may have already come across a few myths about carbon pricing. For example, it is sometimes said that a carbon tax is “for consumers”, because it applies to fuels like gasoline and home heating fuel, while cap-and-trade is “for industry”. But that’s not necessarily the case. Consider British Columbia’s carbon tax: as of July 2008, British Columbians will pay a tax on emissions from burning fossil fuels that starts at $10/tonne and rises to $30/tonne by 2012. The BC tax will apply to 70% of the province’s total greenhouse gas pollution, including emissions from industrial facilities, buildings, homes, cars and trucks. And consumers are likely to be involved even if governments opt for a cap-and-trade system that applies only to heavy industry: experience in Europe has shown that some industrial sectors are able to pass cost increases from cap-and-trade on to consumers.

Another questionable assumption is that “polluters can just buy their way” out of a carbon tax. That’s true, but polluters can also “buy their way out” under a cap-and-trade system by paying for emission allowances rather than cutting emissions in their own operations. What matters more is that, in both cases, polluters have a direct incentive to take all available actions to cut emissions wherever these actions cost less than the price on emissions.

Our view
Based on the best currently-available economic analysis, we believe that Canada needs a price on emissions of at least $30/tonne immediately, at least $50/tonne by 2015 and at least $75/tonne by 2020 to do its part in reducing greenhouse gas pollution [pubs.pembina.org/reports/GBC-CarbonPricing.pdf] [www.tomorrowtodaycanada.ca/]. This price should be applied broadly in the Canadian economy, either through a carbon tax, a cap-and-trade system, or a combination of the two. Where cap-and-trade is used, we support the auctioning of all allowances.
For more information, please see our primer on carbon pricing at pubs.pembina.org/reports/carbon-pricing-Canada.pdf.
Marlo Raynolds

Executive Director, Pembina Institute

www.pembina.org

With the release of the Liberal team’s carbon tax (thegreenshift.ca/default_e.aspx), finally the debate about putting a price on carbon dioxide pollution has hit the mainstream.

For years the environmental movement (www.tomorrowtodaycanada.ca) and academic economists (www.emrg.sfu.ca/sustainablefossilfuels/)(www.cdhowe.org) (www.sustainableprosperity.ca/) have been saying the only way we will seriously reduce pollution is by putting a price on it - with a price in place the market will drive innovation and action to get pollution out of our economy.

Over the past year we have even seen industry including the Canadian Council of Chief Executives (www.ceocouncil.ca — search for “carbon price”) get behind pricing carbon dioxide pollution. Why? Because they too know we have to tackle pollution and having a clear price signal is the only way. Provincially we have British Columbia showing real leadership on this file with their carbon tax. Finally the debate is happening in federal politics.

Critical to any carbon pricing system is that it ensures we help protect individuals on low and fixed incomes who are often facing energy poverty.

I think the best quote I have heard this week on this issue is: “let’s tax what we burn, not what we earn”. No matter which government is in power federally and provincially, it’s time to tax what we don’t want - pollution; and reduce the taxes on what we do want - employment, savings and earnings.

Can we please just get on with it.

Marlo Raynolds
Executive Director, Pembina Institute (www.pembina.org)

Today we released a report called “Upgrader Alley” which looks at the potential scale of environmental impacts due to a massive expansion in upgrading capacity for the tar sands in the Edmonton area (http://www.pembina.org/pub/1654). It is quite shocking to realize just how much of a scar developing the tar sands at the current pace is going to leave in Alberta and the impact it will have on Canada’s international reputation. One of the principles we outlined in our “Tomorrow Today” report (http://www.tomorrowtodaycanada.ca) was “Good global citizenship” - it is time we started acting on this.
If we are truly going to solve the cumulative environmental impacts of the oil sands, it is time to put a pause on approving further projects. The current slate of approved projects will keep the economy rolling for at least the next 5 years, so let’s take a time-out and put the right systems in place to actually protect the land, water, air and climate.

Marlo Raynolds

Executive Director, Pembina Institute

In an article in yesterday’s Globe and Mail, columnist Jeffrey Simpson wrote about how Canada has the worst record of any country that signed Kyoto Protocol.

It’s easy to understand why Canada is being singled out for criticism. Prime Minister Stephen Harper has abandoned Canada’s commitments under the Kyoto Protocol and has shown an aversion to real caps on emissions. He is also refusing to take on new commitments unless developing countries like China and India take on binding targets.

It’s an extremely unjust position. You can’t ask poorer nations to shoulder the burden and do just as much as wealthy nations, especially when we caused the problem. Wealthy countries can afford to develop the technologies that will help us cut our emissions. Without cooperation, technology and incentives, developing countries will be left to make the same mistakes that were made in rich countries.Besides, countries like China and India are included in the Kyoto Protocol. Developing countries were exempt from reductions in the first phase of the Protocol but they will begin to take on commitments in the second phase, which begins after 2012.  As the chart below shows, China’s emissions per person are only about one quarter that of Canada, while India’s are less than one tenth. Over 150 million Chinese and 350 million Indians survive on less than one dollar per day. Both countries lack adequate housing, schools and hospitals for most of their people, and meeting the needs of their people will require their emissions to rise further, and much further if they try to follow in the fossil-fueled footsteps of countries like Canada. The best way to convince these countries to take another path, is for us in the rich countries to lead the way.

It is now so clear how high the stakes are if we don’t tackle the global warming challenge – rising sea levels, strains on food supplies, spread of disease, significant threat to many species.

It is equally clear that we need global cooperation and leadership to set ourselves on a course that allows us all to live fulfilling lives while cutting our greenhouse gas (GHG) pollution by 80+%. This global cooperation must occur with earnest at the highest level and complete conviction to solve global warming at the 2009 United Nations climate conference in Copenhagen.

The Copenhagen conference is the meeting at which the citizens of the world must set science-based targets to prevent catastrophic climate change, starting with targets for 2020. The hardest part of the negotiation will be the allocation of responsibility amongst countries.

Will Canada step up to be a leader or not?

I believe we need Canada to be a leader in Copenhagen. Canada cannot be a bully in Copenhagen demanding compromises, we need to step up and show we are prepared to take real action to substantially reduce GHG pollution between now and 2020.

By demonstrating that Canada is prepared to take real and swift action to reduce emissions we can be a positive force in the international negotiations and help ensure the largest polluters take on a fair share of the responsibility. If we do not show real progress we will be relegated and remembered as a negative influence.

So what will it take for Canada to be a positive force?

Simple, real and swift policy action at home. To date we have only seen a patchwork of policies, weak regulations and no coherent strategy and plan to significantly reduce GHG pollution.

In our report, Tomorrow Today – How Canada Can Make a World of Difference (www.tomorrowtodaycanada.ca) we identified a number of key priorities for action:
1) By 2009, set a price on GHG emissions starting with a price no lower than $30/tonne and increasing to at least $50/tonne by 2015. This price should be applied broadly in the Canadian economy. These pollution levies should be used towards investments in further actions to reduce GHG pollution, and also used to offset any related cost increases for low-income Canadians;
2) Adopt an Energy Efficiency Plan to implement a coordinated package of regulations, financial incentives, and capacity building measures for each major energy-using sector;
3) Adopt a Renewable Energy Action Plan that provides the right incentives to allow Canada to grow and diversify its economy through our incredible abundance of low impact renewable energy resources.

There is simply no reason why we aren’t putting a price on pollution – if you make a mess you need to pay to clean it up. There is also no longer an excuse for us to waste energy. There is no reason we should miss out on the rapidly growing renewable energy industry – let’s start developing and manufacturing these technologies here at home.

In short, Copenhagen is possibly the most important meeting of the world’s governments, ever; Canada needs to show up at Copenhagen as a positive force for change; to be a credible positive force we must take swift and deep policy action at home.

Not only can we do it, we must do it.

Sincerely,

Marlo Raynolds
Executive Director, Pembina Institute
Marlor[at]pembina.org