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Climate Policy and the B.C. Election

posted May 5, 2017, 6:31 PM by Joel Wood

Climate policy has (surprisingly?) become a hot topic in the 2017 British Columbia (BC) Election. All three major parties are proposing climate policies that are more aggressive than Business-As-Usual, but some are offering policies that are much more stringent than others. The current government’s climate policy plans (except for the carbon tax) are outlined in the Climate Leadership Plan available here, the NDP backgrounder is available here, and the Green Party backgrounder is available here.

The Carbon Tax:

Let’s first start with what the parties propose for BC’s signature climate policy: The carbon tax. Since July 2012, shortly after Christy Clark took over as Premier, the carbon tax has remained at $30/ton of CO2e.  The official line has always been that the tax will be increased when other jurisdictions implement comparable carbon prices. However, complicating matters is that the Climate Leadership Team hand-picked by Premier Clark recommended that the carbon tax be increased $10/t a year beginning in 2018. Further complicating matters is that the Trudeau federal government plans to implement a national carbon price floor of $40/t in 2021 and $50/t in 2022 (there are earlier years in the schedule, but BC’s current tax is in compliance). 

One indicator of the stringency of the proposed climate policies is to look at the proposed carbon tax schedules of the three parties:

Party

2018

2019

2020

2021

2022

Liberals

$30/t

$30/t

$30/t

$40/t

$50/t

NDP

$30/t

$30/t

$36/t

$43/t

$50/t

Greens

$40/t

$50/t

$60/t

$70/t

$70/t

 

The incumbent Premier has signalled that BC will comply with the federal carbon price floor and has been a supporter of the initiative since it brings laggard provinces up to BC’s level. The NDP has also stated that they will comply with the carbon price floor, but will slightly over-comply in 2020 and 2021. The NDP schedule is certainly more stringent, but the difference is very small especially since they only differ for 2 years. In terms of tax on gasoline, the difference in the 2021 rates is less than 1 cent a litre.

By committing to increase the carbon tax by $10/t for the next 4 years and broadening the coverage of the tax to include measurable fugitive and vented emissions as well as emissions from forest slash pile burning, the Greens have proposed the most stringent carbon tax plan by a wide margin.

 


Other aspects of policy stringency:

Where the stringency of the policy proposals is more difficult to assess is with respect to additional policies (e.g., regulations, subsidies, etc.). The Liberal’s plan to reduce emissions in the industrial and transportation sectors through a mix of regulations (e.g., energy efficiency standards for boilers, increasing the stringency of the Low Carbon Fuels Standard for cars, regulations on methane emissions, etc.) and subsidies (e.g., fuel switching incentives, Clean Energy Vehicle incentives, etc.). The Liberal plan states the following: “amending regulations to promote, more energy efficient buildings, developing requirements to encourage net zero ready buildings,..” which implies a regulatory approach to reducing emissions from the Built Environment.  However, the estimated reduction from these policies falls far short of the recommendations of the Climate Leadership Team.

Although the NDP ignored the Climate Leadership Team’s recommended carbon tax rate schedule, they whole heartily embraced the Team’s recommendation for a sector-by-sector approach to reducing emissions (where have we heard of the sector-by-sector approach to reducing emissions?). The NDP plan commits to setting emission reduction targets of 30% below 2015 levels by 2030 for the Industrial and Transportation sectors (6.4Mt and 8.4Mt respectively). For the Built Environment they commit to a 50% reduction target which amounts to 3.4Mt of annual emissions. However, details of how the targets will be met are not provided.

The Green proposal provides a substantial list of specific policies that they will implement. However, most are policies that I would expect to have a very small impact. There is a lot of information disclosure or Nudge policies. There is interesting stuff like distance based insurance and congestion pricing. There are also subsidy programs (e.g., home retrofit programs, etc.).  They have regulatory policies such as a Zero Emissions Vehicle mandate, emissions standards for commercial buildings, requirement for Urban Containment Boundaries, and a ban on new registrations of gas and diesel urban delivery vehicles in 2025. Overall it is difficult to assess the effect of all of these policies, some have tiny effects, some have large effects.

This is certainly the most difficult dimension to assess the proposals of the parties. The NDP’s proposed sector-by-sector targets are certainly more stringent than the reductions expected from the policies outlined in the Liberals’ Climate Leadership Plan; however, the history of Canadian climate policy suggests that targets are not necessarily meant to be achieved. Without details of specific measures it is impossible to say whether the targets are likely to be achieved. The Green Plan is a long list of measures, but with no details on the cumulative effect other than stating that they will meet the 2050 legislated target and the 2030 interim target recommended by the Climate Leadership Team. They certainly give more details though than the NDP plan.

 

Meeting the 2050 Target:

In regards to the 2050 target, the Climate Leadership Team put forth a suite of recommendations that would put BC on track to slightly undershoot the target based on their modelling. Therefore, the recommendations of the CLT can be used as a benchmark of whether a proposal is on track to come close to the target. The Liberal proposal ignores many recommendations and adopts a less stringent carbon tax schedule; this suggests the Liberal proposal is not on track to achieve the 2050 target. The NDP adopted the CLT’s recommendation of sector-by-sector reduction targets, but takes a less stringent carbon tax schedule; this suggests the NDP proposal is not on track to achieve the 2050 target. The Green Party proposal adopts the CLT’s carbon tax schedule and adopts their recommendation to broaden the base of the tax. They also adopt other recommendations such as implementing the Zero Emission Vehicle mandate. They also go beyond the recommendations of the CLT in many instances. The Green party’s proposal, when compared to the recommendations of the CLT, is the only proposal that is on track to come close to the 2050 target, and thus, is the most stringent of the proposals. The NDP’s targets are more stringent than the policies the Liberals have implemented, but targets aren’t policies.

 

Carbon Tax Revenue:

The parties also differ on how the carbon tax revenue should be spent. The Liberals in the past have indicated that “the carbon tax can only increase if every dollar is returned to citizens in the form of tax relief”. Under Gordon Campbell, that meant cuts to distortionary taxes, but under Christy Clark that has meant tax credits to favoured interest groups. And as many have pointed out, some of those tax credits already existed.  

The NDP plan indicates that they will maintain the associated Personal Income Tax cuts, but will increase the eligibility for the BC Low Income Climate Action Tax Credit to 80% of households and allocate carbon tax revenue to be spent on transit and clean energy (presumably by reversing the cuts to Corporate Income Taxes and other business taxes).

The Green Party plan says “the tax revenue should be invested to facilitate the low carbon economy”, and critiques the current regime as not “revenue-neutral”.

The Green Party and NDP are quick to praise the recommendations of the Climate Leadership Team; however, they have been quick to ignore the Team’s recommendation with respect to the carbon tax revenue. The CLT recommended reducing the PST by one percentage point. The CLT also recommended waiving the PST on electricity used by business, but the Liberals have already implemented this in the 2017/18 Budget.


Cost-effectiveness & Economic Effects:

Cost-effectiveness is a concept from environmental economics focused on achieving a level of emissions reductions at the lowest cost. Basically, you want to pick all of the low hanging fruit before getting out an expensive ladder. Carbon taxes are cost-effective because an individual or business will only undertake additional emissions reductions if the cost of that reduction is less than paying the tax. Therefore, they will do all reductions that cost less than the tax (the low hanging fruit), and none that cost more than the tax (the high hanging fruit). With a carbon tax, we aren’t forcing one individual to do expensive reductions while another does none; everyone does reductions that, on the margin, cost the same as the tax. Cost-effectiveness does not necessarily occur with regulations. For example, the sector-by-sector reduction targets, if implemented through regulations, may require more expensive reductions in emissions from buildings than from transportation to achieve the targets (or vice versa): there would be social savings from reallocating to equate the marginal cost of reductions. Regulatory policies can be cost-effective, but it would require the government to know the exact percentages across the sectors that equated the marginal costs of reduction (ensuring all pickers are picking fruit up to the same height).

To be cost-effective, the proposals would need to rely solely on carbon pricing instruments; however, none of them do. All three proposals rely on a mix of carbon pricing, regulations, subsidies, and other spending. Furthermore, all three have different levels of stringency making it difficult to assess relative cost-effectiveness without detailed modelling.

The Climate Leadership Team did commission modelling of their package of recommendations. If the recommendations of the Team were adopted, the modelling predicts that, at worst, BC’s GDP would be 1.4% lower in 2050 compared to what it would have been in the absence of new policies. They have a range of estimates; this is just the worst-case scenario. However, not following some recommendations, such as ignoring the recommendation to cut the PST, would probably be expected to affect these projections in a negative way.

 

Conclusion:

The Green Party unsurprisingly has the most stringent climate policy proposal. The NDP proposal is more stringent that of the Liberals, but that stringency depends critically on whether policies would be implemented to achieve the 2030 sectoral targets. If the targets are all talk, as targets often are in Canadian climate policy, then the proposals of the two parties differ only slightly in stringency. The Liberals and NDP do differ substantially on what they do with the revenues from carbon taxation, but that has more to do with how the parties weight equity versus economic efficiency than addressing climate change. This may not be too surprising as the carbon tax is least popular in Liberal strongholds, and most popular in NDP strongholds: to win the close ridings, both parties are moderating their positions.


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