This week, lost in the media circus caused by the resignation of Premier Stelmach and Finance Minister Morton, the announcement of the Alberta Government’s Oilsands Panel and the David Suzuki CBC documentary on the oilsands was a very important announcement in advance of the next Federal Election. The Liberal Party of Canada committed themselves to a cap-and-trade regime, but they kept many of the key details of this system under wraps.
The Liberals have said that:
“A future Liberal government will create a cap-and-trade system that is both verifiable and binding, with hard caps that lead to absolute reductions. A Canadian cap-and-trade system must respect certain broad principles. It must:
- be equitable to all regions;
- emissions targets must not punish early-adopters who have already taken action to reduce emissions;
- cover all industries with no exceptions;
- be compatible with a U.S. cap-and-trade and other systems in the world; and
- put a price on carbon by permitting credits to be auctioned and traded in international markets.”
The first question I have is where the hard cap is set. A hard cap sounds stringent, especially if you say it loudly and emphatically, but it really is all about the numbers. A hard cap of 1200 Mt per year (50% higher than Canada’s emissions today), starting in 2013, increasing at 4% per year would not do much at all…but it would be a hard cap. So, the first question the Liberals need to answer is What’s the Cap?
Let’s assume for the time being that the cap will allow us to meet the 17% below 2020 goal. Next question is who gets the permits? The Liberals tell us there will be an auction of (at least some of) the permits. How much would these permits be worth? The launching point for the LPC policy is the NRTEE’s report on Canada’s potential to harmonize its climate policy with that of the US, which shows how a carbon pricing policy could allow Canada to meet its 17% below 2020 goals, whether or not the US acts. To meet this goal, the NRTEE’s models suggest that we need a policy which prices carbon at about $75/ton by 2020, along with the purchase of about 20Mt worth of international permits. Let’s use their numbers. Assuming an industrial cap-and-trade coverage of about 75% of Canada’s emissions, this annual auction of permits could be worth about $34 billion dollars ($75/ton times about 465 Mt of industrial permits), or about 15% of the total federal government revenue today. That is a big pot of money. In fact, that is more than twice the annual revenue that was predicted to be collected through the Green Shift.
So, as with any new source of government revenue, the question becomes “Who gets the money?”. If we follow the NRTEE policy, a couple of billion a year will go offshore to buy permits. What about the other $30 odd billion? Tax cuts? Research and Development? Social Programs? Refunds to affected sectors? All we are told to date is that this will be redistributed in a way which is “equitable to all regions”. This is far too open ended. If the discussion around climate change at the UN has taught us anything, it’s that equitable means whatever works for me. So, LPC, who gets the money?
Now, don’t get me wrong; I think Canada needs a broad-based carbon pricing policy and I believe that now that we have signed on to the 17% below 2020 goal, we would give up a lot more by not meeting it than we would to meet it. My objection to this plan is that the party that set climate policy back 5 years in this country by allowing the re-definition of a carbon tax as a “tax on everything” may now do the same thing with cap-and-trade, unless they get out in front of questions like these and give people all the information they need up front. If they do that, and the system truly levels the carbon playing field, they might get my vote.