Hot Air

A Whole Lotta Hot Air – The Climate Change Debate

Climate change has been a recurring issue throughout the campaign, even finding its way into the foreign policy debate as the leaders discussed Canada’s climate leadership (or lack thereof) on the world stage. It is also an area in which the three major parties are each presenting distinct policy choices.

The Conservatives are campaigning on the continued implementation of their sector by sector regulatory approach. To date, they have completed regulations governing greenhouse gas (GHG) emissions in two sectors – transportation and electricity. They are promising further regulations covering large final emitter in other sectors. Oil and gas regulations have been under development for some time as part of this.

The NDP are promising a national cap and trade system for Canada’s large final emitters.

The Liberals have not promised a specific system, but have said they will work with the provinces and territories to establish a national target that recognizes the systems already in place or to be established in the provinces. They have said, however, that they will establish a price on carbon.

These are simplifications of the various party platforms for the sake of comparison and highlighting overall policy direction. There are other significant policy elements to the various platforms addressing where funds raised will be allocated, federal funding and others, but all flow from the high level direction.

So which is better?  

Of the two main options of greenhouse gas reductions policy options, cap and trade or carbon tax, the question of which is better is – it depends. It depends on intent, and, as with all policy, on proper design and implementation. Both have been done successfully around the world, often packaged in combination with other measures (and can even be designed to work together).

However, a key difference worth noting is where each provides certainty and uncertainty.

Cap and trade provides certainty over the amount by which GHGs will be reduced, but not over the price. Allowances and permits will be based on the emissions target, but from there the market determines price.

In contrast, a carbon tax system cannot guarantee the amount of emissions reduction, but does provide cost certainty on the cost of carbon.

The regulatory system of the Conservatives theoretically offers both, as the reduction goal and compliance cost of the individual regulation is clear once it is finalized. However, because each sector is being addressed individually, as above to them all collectively, the contribution of each sector to reaching Canada’s overall national target is a matter of negotiation. Thus while the regulations provide clarity for those regulated, other sectors must wait in uncertainty.

The various certainties and uncertainties present pros and cons for both government and business in trying to meet GHG reduction commitments and manage the business environment.

So what are the targets?

The Conservatives have adopted the Copenhagen target of 17% below 2005 levels by 2020. However, in advance of the UN Climate Conference in December, Canada submitted a new target of 30% reduction from 2005 levels by 2030. In absolute terms, this is a new target of 524 Mts (based on national emissions of 749 Mts in 2005[i]).

The NDP have stated it will re-introduce a bill previously introduced under Jack Layton that would adopt a target of 34% below 1990 for the 2025-30 period. In absolute terms, this is 494 Mts.

The Liberals have not announced a national target.

In 2013, the last year for which Environment Canada has posted data, Canada emitted 726 Mts.

This means that, no matter who wins on October 19, Canada’s new climate change policy will need to achieve reductions of somewhere between 12 Mts/year and 19 Mts/year over the next 10-15 years to meet our national commitments.

Over the past 25 years, only twice has Canada managed to reduce its emissions by more the 10 Mts year over year – from 2007-2008, and again from 2008-2009. Both instances would suggest that economic downturns are been more effective thus far than government policy in lowering emissions in Canada. This makes for a daunting challenge for the next government, and those businesses trying to navigate whatever option emerges.

[i] Source: Environment Canada