1. Canadian Climate Policy:
Regional Impacts and Future Prospects
Mark Jaccard
School of Resource and Environmental Management
Simon Fraser University
November, 2010
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2. Presentation in two parts
Part I
If Canadian government wanted to reduce GHG emissions, how
could it address perceptions of regional unfairness?
Part II
If Canadian government did not want to reduce GHG emissions,
what could concerned citizens do?
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3. Part I
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4. Emissions diversity in Canada
Regions have different emission intensities because of their natural
endowments of fossil fuels and hydropower, and their historic
development of electricity and industry.
Hydropower in Quebec, Manitoba, BC and Newfoundland. Coal
fired electricity in Alta-Sask – but also NB, NS and Ontario.
Emissions from fossil fuel extraction and processing in Alta-
Sask, Newfoundland and BC.
Alta-Sask assumed distinct – (1) yes, their emissions per capita are
much higher, (2) but emissions intensity of their economy is not
so distinct (coal-fired electricity in other regions; country-wide
emissions from transport, buildings, industries like cement, and
municipal landfills).
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5. GHG emissions per capita in
2007
Peters et al, 2010
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6. GHG emissions intensity of
economy in 2007 (GHG/GDP)
Peters et al, 2010
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7. Assumption climate policy will
especially harm Alta-Sask
Assumption that climate policy will especially harm economies
dominated by fossil fuel extraction and processing.
Assumption that federal “emissions pricing policy” will transfer
resource-related wealth from Alta-Sask to rest of country if
carbon pricing revenues returned to Canadians via federal
spending programs and/or cuts in income and corporate taxes.
(Alta-Sask would contribute perhaps 40% of emissions revenue
but has less than 15% of population and less than 25% of
corporate income.)
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8. Who should pay for emissions
abatement? Concepts of equity
Polluter pays. Equity requires that polluters pay for emissions they
cause – equal charge for every tonne with no compensation.
Equally shared costs. Unfair to penalize high emitters since they
adopted technologies with societal approval. Equity requires
society to share costs of abatement – equal cost per citizen.
Ability to pay. Equity requires wealthier regions or individuals to pay
a greater share per capita.
The fair outcome? Equity perspectives tend to reflect self-interest.
The likely outcome? Compromise / trade-off of power politics and
equity perspectives. (e.g., influence if Alta-Sask votes federally
as bloc, threatens separation, etc.)
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9. Our study? Apply state-of-the-art
models to assess regional
impacts of alternative policy designs
Micro-economic model that simulates technological change as firms
and households face rising cost of emitting GHGs.
Provides elasticity (price response) parameters to . . .
Macro-economic equilibrium model that simulates regional
economic output change as production costs, revenues and
personal incomes change with (1) technological switching, (2)
tax changes, and (3) trade and investment changes.
(Government fiscal position assumed not to change.)
These are standard energy-economy-emissions models.
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10. CIMS: technology-explicit, micro-
economic model
Technology-explicit capital stock vintage model
Evolution of energy service demands determined by population,
economic growth and cost feedbacks
Full integration of energy supply and demand
Technology choice and decision making represented
• Market share is calculated via a probabilistic
simulation (logistic curve)
• Includes behavioural parameters to reflect technology
choice/consumer preference
Declining cost functions represent technology learning and shifts in
consumer preference
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11. GEEM: macro-economic
general equilibrium model
Covers all major economic activities at aggregate level (investment,
employment, savings, trade, government expenditures)
Regionally disaggregated into Alberta, BC, Saskatchewan,
Manitoba, Ontario, Quebec, Rest of Canada;
High industrial disaggregation for emissions-intensive sectors:
• Manufacturing: petroleum refining, chemicals, non-metallic
minerals, primary metals and other manufacturing;
• Oil and gas: conventional, tight and shale gas production;
conventional light/medium and heavy; oil sands
Technological detail for CCS in key sectors (e.g., electricity, oil
sands, chemical manufacturing, petroleum refining).
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12. GEEM: economic flows
From other Regions
and Rest of the World Armington
Imports Welfare
Imports Aggregator Final Demand
Foreign Exchange Production Intermediate Leisure Welfare
from International For Domestic Inputs
Exports used to buy Consumption
International Imports
Exports Industry Consumer
To other Regions Production Capital, Labour
and Rest of the World For Export
Capital from other Capital to other
Regions Regions
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13. Target and simulated policy
designs
Target – 17% reduction from 2005 levels by 2020 (current Canadian
government target)
Simulated policy designs
• Intensity based cap and trade – economy wide
(past federal proposal for industry, exists already in Alta)
• Absolute cap and trade with 100% auctioning of permits with
revenue recycled via federal corporate and personal tax cuts
• Absolute cap and trade with 100% auctioning of permits with
revenue recycled via federal transfers to each province equal to
its contribution to emissions revenue
(provinces in turn cut corporate and personal income taxes).
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14. Policy simulations: growth rates
(2010 to 2020)
2.5% Alberta and Saskatchewan
Rest of Canada
2.0%
Annual Growth in GDP
1.5%
(%)
1.0%
0.5%
0.0%
Business-as-usual Intensity-based cap- Auction with Federal Auction with Provincial
and-trade system Personal and Corporate Personal and Corporate
Income Tax Cuts Income Tax Cuts
Peters et al, 2010
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15. Policy simulations: revenue
transfers (2020)
4.0%
Financial Transfers between Regions
Alberta and Saskatchewan
3.0%
Rest of Canada
(% of GDP in 2020)
2.0%
1.0%
0.0%
-1.0%
Intensity-based cap-and-trade Auction with Federal Business Auction with Provincial
system and Personal Income Tax Cuts Business and Personal Income
Tax Cuts
Peters et al, 2010
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16. Sensitivity analysis:
mobility of capital
Baseline assumption in all simulations
• no significant emissions pricing by major trading partners
• no emissions border tax adjustments by Canada
• level of foreign investment unchanged by Canadian
emissions pricing (assume zero capital mobility)
Sensitivity analysis
Relax the assumption that level of foreign investment in Canada
cannot change (assume frictionless capital mobility across
borders in search of highest returns)
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17. Sensitivity results
Results
Given model’s design and parameter values, relaxed capital mobility
did not change GDP growth much from simulated rates (.02%
lower growth rate)
(model design and parameter values available from authors)
Auction with Auction with
Intensity-based cap- Federal Personal Provincial Personal
and-trade system and Corporate and Corporate
Income Tax Cuts Income Tax Cuts
Alberta and Saskatchewan 2.10% (-0.02%) 1.87% (-0.01%) 1.99% (-0.02%)
Rest of Canada 1.86% (-0.02%) 2.05% (-0.01%) 1.99% (-0.02%)
Total 1.91% (-0.02%) 2.01% (-0.01%) 1.99% (-0.02%)
Explanation? Peters et al, 2010
• Short timeframe to 2020 – capital stock change.
• Modest climate target, thus modest changes in cost of
production.
• Corporate tax reductions retain rates of return close to baseline
levels and thus spur economic output in some sectors.
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18. Caveats: issues external to this
study
Analysis ignores that emissions pricing elsewhere (perhaps
globally) may lower GDP of Alta-Sask and Newfoundland
because of lower international oil price and/or reduced oil
exports (recent MIT study). This results from global effort, not
Canadian target or policy.
Analysis ignores the GDP and non-GDP impacts to Alta-Sask and
other regional economies from climate change.
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19. Study conclusions
Without substantial harm to national economic growth, Canada
could initiate today an emissions pricing policy to achieve its
promise to reduce 2020 emissions to 17% below 2005.
The emissions pricing policy could be designed to meet different
concepts of regional equity including:
• Similar, but small, decreases in rate of economic growth in
Alberta, Saskatchewan and rest of Canada.
The emissions pricing policy could be designed to ensure:
• No new transfer of wealth from Alberta and Saskatchewan
to rest of Canada.
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20. Part II
What if government does not
want to reduce emissions?
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21. The broader context: regional
impacts as convenient excuse
In spite of a 2020 emissions target that requires immediate policy
action, Canada’s Conservative minority government has
found excuses not to act and now used Senate to block a bill.
Convenient excuse # 1
Widely held assumption that climate policy will concentrate costs
on specific regions, notably Alta-Sask.
• Federal government not conducting studies (like this CD
Howe report) to show Canadians that regional impacts can be
mitigated.
• Federal and Alberta governments react negatively to efforts to
explore these issues – David Suzuki Foundation / Pembina
report funded by TD Bank.
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22. Convenient excuse #2:
“waiting for Godot”
Convenient excuse #2
Thus far, no political cost in Canada to “waiting for US”. Rationale:
• Canada going first may hurt economic recovery.
• Waiting and coordinating with US cap and trade may reduce
emission reduction costs.
• Matching US policy should prevent US border tax adjustments
on Canadian imports.
• If no US cap and trade, likely admin and econ benefits to
matching US regulations on vehicles, electricity, industry, etc.
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23. The more things change, . . .
Canadian climate goals and profile depends on party in power.
But the outcome in terms of policy does not.
• From 2000-2006 Canadian Liberal government distinguished itself
from US / George Bush by retaining aggressive Kyoto target. Strong
talk, but ineffective policies (neither emissions pricing nor significant
regulations).
• In power since 2006, Canadian Conservative government has, since
the Al Gore scare, evolved toward no action and no talk of action.
Saving grace?
Some provincial governments have implemented stronger
policies, but are constrained by inaction elsewhere in North
America (e.g., future increases in BC carbon tax).
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24. Huge difficulty of global action
Global public good problem.
– Virtually everyone’s contribution is small enough that individual
initiatives are of little value.
– Without compliance enforcement mechanism, incentive to free-ride.
Delayed effects problem.
– Action must be taken far in advance to avoid impacts, but human
decision-making (individual, market, politics) often myopic.
Who pays problem.
– Perceptions of equity aligned with self-interest (polluter pays vs equal
payment per capita or GDP vs historical responsibility)
Uncertainty problem.
– Complex earth-atmosphere system means ongoing uncertainty, but
also substantial risk of catastrophic outcome
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25. Huge difficulty of national action
Perceived concentrated costs.
– Alberta pays or the poor pay or rural people pay or soccer moms pay.
Easy to blame others.
– Alberta’s fault because of tar sands vs Ontario’s fault because of
automobile industry. Industries’ fault vs consumers’ fault.
No easy alternatives.
– Energy efficiency not easy or effective, renewables, nuclear and CCS
alternatives have own impacts and risks.
– Everyone has a clever rationale for continuing what they do – more
efficient coal plants, oil sands to US and China, natural gas to US.
Individual and collective self-deception about policy effectiveness.
– Assumed effectiveness of information / education and of subsidies.
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26. What options if government
won’t act?
Common assumption that individual actions as consumers and firms
make a difference – voluntary actions, offsets. More likely? Zero effect
and even negative by letting governments off the hook.
Make a difference? Civil actions that prevent major investments linked
to GHG emissions. Actions? Political, legal, public demonstrations,
civil disobedience. Targets? New fossil fuel developments, including
extraction, pipelines, refineries, coal-fired electricity plants, vehicle
manufacturing plants (gasoline and diesel vehicles), retailers selling
emitting products (propane patio heaters), urban planners and
developers.
Model for civil organization? MADD – lobby for behavioral change, but
more importantly pricing and regulatory policies. RAGE – residents
against greenhouse emissions.
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27. Extra slides
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28. Provincial governments – Alberta
International and national public relations challenge because of oil
sands and coal-fired electricity. In 2007 introduced performance
standard for industrial fossil fuel emissions.
– Required initial 12% intensity reduction (emissions per unit output)
then intensity reduction of 2% per year.
– Fee of $15 / tCO2 for emissions in excess of standard.
– Revenues collected from fee are accumulated in a technology fund for
distribution to industry based on competing bids.
– Additional government revenues added to technology fund to
especially subsidize investments in carbon capture and storage.
Optics
– Alberta points out it was first in North America to price emissions.
– Claims emissions taxed at $15 / tCO2
– But fee only applied to excess emissions – average fee for industry
fossil fuel emissions less than $5.
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29. Provincial governments – BC
2007 – for electricity, commits to 90% clean energy standard (like RPS
but focused on emissions rather than renewables).
– Effectively disallows coal plants and natural gas plants without carbon
capture and storage – two planned coal plants and one natural gas
plant cancelled.
– Rapid development of run-of-river projects, some wind and some
biomass.
2008 – carbon tax on all fossil fuel combustion emissions
– 2/3 of revenue collected from industry, 1/3 households;
– revenue neutral with all revenue returned via corporate income tax
and personal income tax cuts (and tax credits – low income)
– tax of $10/tCO2 in 2008, rising by $5 every year to reach $30 by 2012
(post 2012 not yet decided).
Other policies
– Implementing low carbon fuel standard, and other policies (municipal
planning, transit investment, etc.).
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30. Provincial governments – Ontario
Commits to phase out all coal-fired electricity (initially almost 1/3
of production) by 2014.
– Initial target was 2007, but extended to 2014, some closure has
already occurred.
– Rapid development of natural gas plants.
– Policies to foster renewables via feed-in tariff subsidies, with
higher subsidies for high cost renewables (PV).
– Renewables support linked to local manufacturing investment,
but currently subject to challenge under trade laws.
Other policies
– Host of other “green policies” but no emissions pricing
– Policies include transit investment, municipal planning, etc.
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31. Provincial governments – misc
Quebec to develop only hydropower and small renewables
(especially wind) in electricity generation. Also has small
carbon tax, with funds used to support alternative energy.
Other provinces have various soft policies, but no emissions
pricing or strong regulations.
Several provinces (BC, Manitoba, Ontario, Quebec) involved in
Western Climate Initiative and its effort to create regional cap
and trade system. Ongoing negotiations, but ultimately
dependent on will of US state governments (fading as
governments like California address other priorities).
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