In 2009, Canada finds itself facing both new and familiar climate policy challenges. The past several years have seen the emergence of federal and provincial plans to arrest and ultimately reduce greenhouse gas emissions (GHGs) in Canada. A variety of policy instruments have been ventured? from carbon taxes to trading regimes to technology funds to regulations. A deeper understanding by many Canadian interests of the likely scale of the problem and solutions to it is taking root.
Yet, the collective result has been perhaps less than anticipated. Carbon emissions remain on a rising path; Canadian businesses and consumers confront the prospect of a fragmented patchwork of federal, provincial, territorial, and regional carbon pricing policies sprouting across the country and continent; and now we are dealing with the onset of a global economic recession more complicated and profound than we have experienced in decades.
But with these challenges come opportunities. A new administration in the United States has committed to significant climate policy action domestically and internationally. A growing international consensus to develop a post-2012 framework implicating all emitters is emerging. And, economic recession will ultimately give way to renewed economic growth, giving Canada the opportunity to position itself now for a truly sustainability-oriented recovery based in part on an effective, unified national carbon pricing policy.
The movement toward a low-carbon world is inevitable. But our place in it is not. Like our economy as a whole, Canada?s long-term competitiveness in a low-carbon future will not be served by inter-jurisdictional carbon competition here at home or by allowing protectionist carbon barriers to be raised at our expense abroad. The link between the two is obvious. Engagement internationally needs to be reinforced by harmonized action nationally. Canada?s national environmental and economic interests jointly demand such an approach.
The National Round Table on the Environment and the Economy believes now is the time to press forward on the design of the right climate policy for Canada and Canadians. A year of research and consideration has reinforced our view that it is urgent to act decisively, even in the face of current economic turbulence and evolving climate science. Now is exactly the time to seize the opportunity before us?of preparing for a sustainable economic recovery and actively engaging the US and our other major trading partners. Now is the time to lay the groundwork for a truly effective long-term climate policy framework through a nationally collaborative approach to a unified carbon pricing policy in Canada and an internationally harmonized approach in North America.
This report recommends a unified carbon pricing policy for Canada?a policy aimed at meeting one clear objective: the greatest amount of carbon emission reductions, at the least economic cost. Following more than a year of research and consultation, our report sets out what we believe is the most effective, realistic, and achievable carbon pricing policy for current and anticipated Canadian circumstances.
The scale of transformation to the Canadian energy system to meet the federal government?s 2020 (20% below 2006 levels) and 2050 (65% below 2006 levels) emission reduction targets should not be underestimated. Greenhouse gases are so widely embedded in the energy we use that to significantly reduce emissions will have wide-ranging economic and social implications. Our collective challenge now is to transition the emerging fragmentation of current carbon pricing policies to a unified policy framework across all emissions nationally. The negative consequence of not doing this, and maintaining this fragmentation of differentiated carbon prices across emissions and across jurisdictions, will be significantly higher economic costs, intensified environmental impacts, entrenched barriers that will make it harder to act in the future, and the real risk of not being able to meet Canadian emission reduction targets.
The carbon pricing policy proposed in this report has two main goals. First, it seeks to achieve the Government of Canada?s medium- and long-term greenhouse gas emission reduction targets at least cost. Second, it seeks to minimize adverse impacts of achieving these targets on regions, sectors, and consumers.
A nationally integrated carbon pricing policy is required to meet these goals based on four main elements. At the core is an economy-wide cap-and-trade system to price carbon and provide real market incentives for firms and households in Canada to change their technology choices and behaviour in order to reduce emissions. Complementary regulations and technology policies are then needed to improve the cost-effectiveness of the cap-and-trade system by broadening coverage across all key emission sources, while supporting targeted technology development and deployment. Participation in international emissions markets through trading and credit purchases will help reduce economic costs at home by allowing Canadian firms and consumers access to credible reductions internationally. Finally, a climate governance and implementation strategy is needed to establish new, collaborative institutions and coordinating processes to implement and adapt the carbon pricing policy over time, making sure it sends a clear and certain price signal to industry and consumers, while remaining responsive to new information and situations.
These are our conclusions:
Getting started with the right national carbon pricing policy is the first, best step Canada can take to achieve its ambitious medium- and long-term greenhouse gas emission reduction targets. Our research indicates that Canada has the capacity to successfully achieve these targets while maintaining a high standard of living and continued economic well-being. But our research also shows that this transformation will require us, as a country, to take three steps:
First, we need to implement a carbon pricing policy that is both certain and adaptable.
Investors and consumers will have the confidence to change their behaviour if they are certain the policy and prices are real; at the same time, the policy must be responsive to changing information and circumstances to secure our own interests.
Second, we must unify carbon policies and prices here at home. That means transitioning from the current, fragmented patchwork of federal, provincial, territorial, and regional policies to a unified or harmonized carbon pricing policy that covers all emissions in all jurisdictions.
Third, we need to link our carbon pricing policy and trading system with the world next door. Enabling international emissions trading, particularly with our largest trading partner, the United States, will help address competitiveness concerns and manage our costs.
Unify at home; link with abroad; implement with certainty and adaptability. This is the foundation for the specific carbon pricing policy guiding principles we set out below:
paying to meet the stated targets, which will be viewed as unfair and inequitable. Using revenues generated by the cap-and-trade system through the auctioning of emission permits provides flexibility within the uniform system to address specific economic or societal needs arising from the carbon pricing policy.
This report serves as a comprehensive and integrated recommendation for developing and implementing a Canadian carbon pricing policy. To reinforce the report?s research, analysis, and conclusions, the NRTEE highlights the following specific recommendations for consideration:
1. Unify carbon policies and prices across emissions and jurisdictions based on three principal policy elements:
2. Ensure the unified Canadian carbon pricing policy can link with current and proposed international systems and, most particularly, with a prospective trading regime likely to emerge in the United States, to ensure compatibility in pricing and action.
3. Use generated revenue from permit auctions first and foremost to invest in the required technologies and innovation needed to meet the Canadian environmental goal of reduced GHG emissions.
4. Transition the current fragmented approach to carbon pricing across jurisdictions and emissions to a unified Canadian carbon pricing regime as soon as possible and no later than 2015.
5. Establish a dedicated carbon pricing governance framework based on adaptive policy principles to develop, implement, and manage the unified carbon pricing regime over time with the following elements: