Perfecting Canadian Climate Policy

Perfecting Canadian Climate Policy

By Dennis McConaghy

May 26, 2021

Presently, the Trudeau government’s climate policy identifies with the long-term aspiration of achieving zero net emission in Canada by 2050. More specifically, Canada unconditionally commits to meeting its Paris emission reduction target for 2030. To meet both objectives Canada will de facto impose a national carbon tax over the remainder of the decade rising to $170/tonne by 2030. However, this carbon tax regime is not necessarily the only policy instrument that will be imposed if meeting the Paris target is expected to be achieved. Unsaid explicitly by the current Trudeau government is that it will accept any cost required to meet them. To date, no conditionality applies on what this will cost Canada.

What the actual cost/benefit to Canada to just meeting its Paris targets actually is has never been transparently put to Canadians. Implicitly this suggests that this fundamental energy transition of de-carbonization is nothing but economic upside.

The O’Toole Conservative climate position also insists that it will meet Canada’s current emission reduction targets arising out of the Paris Climate Accord. Carbon pricing for large industrial emitters will seemingly be aligned with the current Liberal position of rising to $170/tonne by 2030. But for all other Canadian emissions carbon pricing will rise no higher than $50/tonne. Akin to the Liberals other policy instruments will be resorted to increase emission reductions but with no context as to how much that those will cost Canadians, and for what net benefit.

Canadians deserve to know the dimension of the economic sacrifices they are being asked to make. Specifically, Canadians need to know how the national carbon pricing that either a Trudeau or O’Toole government imposes compares to what is being done in the countries Canada competes and trades with, and with special attention to the United States. How can it ever be higher that applies in those countries?

Canadian carbon pricing should never be higher than what the countries we trade with are prepared to impose on themselves. This constraint should define the level of emission reductions that Canada can actually contribute. Moreover, it elegantly protects Canadian competitiveness and ensures that Canada is doing its share but no more than its reasonable share. The inescapable consequence of that is that Canada is no longer driven by arbitrary and implausible targets.

Canadians, and especially its politicians, need to appreciate that the country has very few inexpensive incremental emission reductions available to them. Canada has already substantially de-carbonized its electric generation sector, long before it got any credit for it. Substituting natural gas for coal requires a relatively low carbon price. But that opportunity barely exists anymore in Canada. So asking for incremental emission reduction from Canada is more difficult and costly than many other countries particularly the US. Again, logically this should lead Canada to equilibrate on price not quantity in respect of climate policy.

Two realities should guide how Canada deals with its hydrocarbon production sector in the context of a climate policy based on logically constrained carbon pricing. Restricting expansion of Canadian hydrocarbon exports does nothing material for reducing global emissions. If Canada does not meet that demand other countries will, with comparable or worse production related emissions. Reducing global emissions requires less hydrocarbon consumption or some dramatic breakthrough to reduce the cost of carbon capture and sequestration. If Canadian hydrocarbon producers internalize the applicable carbon tax on their own production related emissions that is all Canada has to ask of them. No unique emission caps or other prohibitions.

And finally, reliance on markets to determine how and when energy transition will occur. Internalizing the carbon price applicable in the key economies of the world should be the extent of Canadian climate policy. No picking of specific “winners and losers”, be it biofuel, hydrogen or conventional renewables, sequestration, etc. If regulations and mandates are imposed, come clean on how they compare with the national pricing standard based equilibrating with those countries on price not some implausible emission reduction metric.

If the world and especially the US has the resolve to impose in excess of $200/tonne on itself, Canada will meet that standard. But why would it ever do so until that occurs And in both Canada and US that pricing level will have to be democratically validated by the electoral process. If other considerations do not sanction such a pricing level why would Canada for some altruistic reason do it in any case?

Disclaimer: The opinions expressed in this publication are those of the author and do not represent the views of the CCRE.

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About the Author

Dennis McConaghy

Dennis McConaghy, Author
former Executive Vice-President
Corporate Development
TransCanada Corporation

Dennis McConaghy has 30 years of experience in the Canadian energy industry in prominent commercial executive positions that included the commercial development of the Keystone XL pipeline systems within TransCanada Pipelines from its conception in 2006 to the finalization of commercial agreements in 2008.  He is currently a visiting fellow at the public policy and energy studies schools at the Ivey Business School at the University of Western Ontario and an adjunct fellow at the Niskanen Center, a DC based think tank focused on carbon and energy policy. In 2017 Dennis published a book, “Dysfunction – Canada after Keystone XL”, analyzing the Keystone XL experience and its implications for Canada. As well, he continues to be an active commentator on current energy and carbon policy issues. In the Fall of 2019 Dennis’s second book, “Breakdown, the last four years of pipeline frustration in Canada” was published, and awarded the 2019-2020 Donner Prize, recognizing this work as the best public policy book by a Canadian.

About the Donner Prize

The Donner Canadian Foundation created this prize to recognize and reward the best public policy thinking, writing and research by a Canadian, and the role it plays in determining the well-being of Canadians and the success of Canada as a whole. Previous honourees have shed light on a wide range of issues bearing on the economy, politics, and society in general.