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A Breath of Fresh Air for Federal Climate Policy

posted Oct 20, 2015, 12:09 PM by Joel Wood   [ updated Oct 20, 2015, 2:09 PM ]

The election of the Liberals and Justin Trudeau to a majority government feels like a breath of fresh air on the Canadian climate policy front. We kept waiting and waiting for those long promised Greenhouse Gas emission regulations for the oil and gas sector (among others…) that never seemed to materialize. However, in federal Canadian climate politics, that fresh air always has the potential to dissipate quickly.

First things first, the Liberals should name an Environment Minister who knows the file well. Stephan Dion has been Environment Minister before, so he would bring familiarity and experience to the portfolio. However, I think Trudeau should go with the newly elected Will Amos, an environmental lawyer who has a wealth of experience advising past federal governments on environmental policy.  (Note: unrelated to climate policy, but Will Amos wrote an excellent paper on Canada’s offshore oil spill liability laws).  I think Amos would bring energy, expertise, and passion to the environment file that will make up for any ministerial inexperience.

Second, as Dave Sawyer noted in a blog earlier today, the incoming Trudeau government needs to put the political focus on actually implementing emissions reduction policies, not on national targets. Many blame the dearth of effective federal climate policies solely on Stephen Harper and the Conservatives, but this was also true under Jean Chretien and the Liberals. Canada’s federal governments have had a history of agreeing to seemingly “modest” emission reduction targets. Chretien did this with Kyoto and Harper did this again at Copenhagen. Both targets would’ve required climate policies that imposed a price on carbon of well over $100 a tonne which is much more ambitious than what other countries agreed to meet. Given this high marginal cost of emissions abatement, it is no wonder federal leaders have been happy to ignore their obligations. That said, Trudeau should attend COP21 in Paris, and he should invite Elizabeth May, Christy Clark, Rachel Notley, Kathleen Wynne, and Phillippe Couillard to come with him. He should just keep in mind the past history of Canadian climate targets and only agree to a target on which he can actually deliver the government policies needed to ensure achievement.

Trudeau’s proposed climate policy during the campaign was for Canada to continue with provincial climate policy action, but with a coordinating and support role of the federal government. The idea being that our largest provinces have taken the lead on implementing carbon pricing policies, so the time for a top-down federal policy is past. This started with Alberta in 2007 implementing its Specified Gas Emitters regulation that imposes a price of $15 a tonne on emissions in excess of targets on emissions intensity. British Columbia followed suit in 2008 by implementing a broad-based, revenue-neutral carbon tax that is now $30 a tonne. Quebec implemented a cap and trade policy that is now linked with California’s.  And Ontario has plans to join the Quebec and California system. Prices in the permit auctions in the cap and trade system are currently under $15 a tonne. One federal role would be to encourage, either with a carrot or a stick, the laggard provinces to implement carbon pricing policies. Another federal role would be to encourage some sort of standardization in carbon price across provinces; again this could be done using carrots or sticks. Although I should note that you cannot guarantee the same prices across provinces since with cap and trade the permit price will vary over time, but some sort of Cap/Price Adjustment process could be agreed upon with the provinces.

However, these federal roles will take a lot of work and a lot of negotiating with the Premiers and the Council of Canadian Ministers of the Environment. Dave Sawyer proposes that in the meantime, the feds could go ahead and immediately raise the federal excise tax on gasoline by 2 cents per litre. I am definitely a two-handed economist on this one. On the one hand, the federal gas tax has been 10 cents a litre since 1995 and does not increase with inflation. That means that every year, we are paying a lower federal gasoline tax in real terms. By increasing the federal gas tax to 12 cents a litre, the federal government would be imposing a modest carbon tax across the country to take immediate action to reduce emissions. And the policy would be effectively temporary as positive inflation would eventually eat the two cent tax increase.  This allows the federal-provincial negotiations to get any standardization process right without losing time on emissions reductions. On the other hand, I am not sure how raising the federal gas tax would affect the federal-provincial negotiations. BC has been a leader on climate policy and is Trudeau’s best potential provincial ally on climate policy. I am not sure Premier Christy Clark would be too happy with the feds rewarding BC’s early action with a federally imposed tax increase. Maybe a provincially-differentiated tax could be worked out, but again, this would lead to delays.

However things eventually shake out, it is an exciting time for environmental policy wonks in Canada.