As information continues to trickle out about the NDP cap-and-trade program, I thought I should go back to the NDP budgets quickly. An issue arose today with respect to the eventual gas price impacts of their cap-and-trade policy, and whether an NDP policy which does not price transportation emissions could reach their budget targets. It could. In fact, the math lines up very nicely. The practical likelihood of getting such a system on line in 2012 remains minuscule, but let’s put that aside for now.
Clare Demerse rightly points out that the NDP has projected 3.6 billion dollars worth of revenue, from auctioning 25% of the permits in the first year of the system, with an expected auction price of at least $45. Quick math tells you that means they are planning to allocate 320Mt of emissions permits in total, with an 80Mt auctioned to give the 3.6 billion in revenue. Who would be required to hold these permits, and based on what emissions? Well, if you define “big emitters” as including energy industries and electricity generation, you can flip to page 49 here, and you will see that those sources total up to 306Mt in 2008. The emissions in the energy and electricity sectors will likely grow, without policy, to 330-340Mt by 2012. If you included all of the transportation and heating fuel emissions associated with burning the gasoline, diesel and natural gas, that would add at least another 200Mt to the total (see page 52 here for a breakdown by vehicle class). If you wanted to include downstream emissions, there would simply be far too few permits to go around if you are only issuing/auctioning 320Mt worth.
So, it seems very likely that what the NDP has in mind is a combined allocation and auction of permits which would cover the facility emissions in energy production and refining as well as electricity production. If you capped emissions from this sector at 320Mt for 2012, a price of $45 per ton is well within the appropriate ballpark for what the permit would be worth, so you could expect them to collect their projected 3.6 billion in revenue.
This all assumes they could get a system off the ground in that time, which is unlikely at best. If the system seeks to cover all 320Mt from the industrial sectors, this will take some additional work since some of those emissions are not reported under the current facility reporting framework. Large facilities in those sectors only report point source emissions (plants, not trucks and shovels) and only large facilities report, so the total emissions that are ready for a cap-and-trade program today is closer to 250Mt than 320Mt.
If this is, in fact, the system they have in mind, refineries would not be responsible for purchasing permits for combustion emissions, and so you should expect, as I outlined here, a price impact of about 4c/l.
If you take the NDP or any of the federal parties at their word in terms of targets, there is no escaping the need for the gas price impact to increase. To meet the Government of Canada 17% below 2005 target, we will likely need the equivalent of a carbon price of around $75-100/ton by 2020 covering almost all emissions in the economy including gasoline and heating fuel. The impact of meeting these targets on gasoline prices would likely be in the area of 30c/l by 2020.