Despite the federal Conservative government’s seven-year attack on carbon pricing as a “job-killing carbon tax,” Canada is actually making progress provincially on pricing carbon pollution.

Without any direction from the federal government, Alberta, British Columbia, Quebec and recently Ontario have all introduced systems that require polluters to pay for the greenhouse gas (GHG) emissions they produce (as we’ve pointed out elsewhere in this series, those systems have had varying success).

But without an overarching carbon pricing system there is only so much the provinces can accomplish. [view:in_this_series=block_1]

“There’s nothing stopping the federal government from attempting to help provinces and territories strengthen and expand their existing GHG programs,” Katie Sullivan, North America policy and climate finance director at the International Emissions Trading Association, said.

“Ottawa could provide model rules, methodologies, guidance, tools and centralized infrastructure and architecture for a variety of program elements,” she said. “The federal government could play a valuable ‘enabling’ role.”

Dave Sawyer, a leading economist with EnviroEconomics, told DeSmog Canada a national system doesn’t have to be overly complicated.

“[A] national system could be just an amalgam of provincial policies that align on key administrative features and prices,” he said, adding, “long-term, we need to transition to a national system to keep costs down as we seek more [emissions] reductions.”

Every ship needs a captain.

Is A National Carbon Pricing System In The Cards?

As DeSmog Canada reported last April, the majority of Canadians want a national carbon pricing system. The latest Angus Reid poll shows 75 per cent of Canadians want a national cap and trade system, while 56 per cent support the idea of a national carbon tax. 

So where do the major federal parties stand?

GHG reductions targets according to federal party platform from Environmental Defence's climate scorecard.

Environmental Defence recently released a helpful climate scorecard that compares the four major political parties in Canada on their climate policies.

While the federal NDP and Greens both support their own versions of a national carbon pricing system — via cap and trade and fee and dividend, respectively — the Conservatives and Liberals have expressed no similar support.

Prime Minister Stephen Harper has been openly critical of carbon pricing in the past, although he did have a few positive words for Alberta’s carbon levy last year. 

Liberal leader Justin Trudeau told Calgary’s Petroleum Club last February he does not support a “one-size-fits-all solution from Ottawa” when it comes to pricing carbon. He said the choice should be left up to the provinces.

An overview of Canada's federal parties from Environmental Defence's climate scorecard.

Bridging the Provincial-Federal Divide

Philip Gass, senior researcher at the International Institute for Sustainable Development (IISD), said a province-by-province approach makes sense but that federal support could help encourage provinces hesitant to commit.

“Each province should be allowed to adopt its own approach,” Gass said. “Provinces should adopt whatever carbon pricing system they think will deliver the most reductions, they can administer and most importantly, a system that is politically acceptable.” 

“For provinces that are not going that way we do need some federal direction.”

“There are many of examples in Canada of issues that crossover both federal and provincial jurisdictions like pricing GHG emissions,” Nathalie Chalifour, law professor and co-director of the Centre for Environmental Law and Global Sustainability at the University of Ottawa, told DeSmog Canada.

Take the federal Species At Risk Act as an example, she said. While the provinces have jurisdiction over species at risk within their borders, the federal government is responsible for federal lands or species that fall under federal jurisdiction like fisheries.

“Given this shared power, there is a provision in the Act allowing the federal government to intervene and manage endangered species under provincial jurisdiction if the provinces are not getting the job done,” Chalifour told DeSmog Canada. 

(It’s worth nothing that in the thirteen years of the Species At Risk Act the federal government has never exercised this provision.) 

The federal government could set a minimum price on GHG emissions. This approach has been described as a “key policy leveler” for carbon pricing in Canada. It could help resolve certain disparities, like the fact that B.C.’s carbon price is currently twice as high as that of Alberta’s or Quebec’s.

But a minimum price isn’t necessary, just like a national minimum wage isn’t necessary for the federal government to enforce the Canadian Labour Code across the provinces.

According to Sullivan from the International Emissions Trading Association the federal government has an important role in ensuring the monitoring and reporting of emissions is “consistent and aligned from coast-to-coast.”

Even basic things like “establishing a centralized registry to record and track emissions data and transactions,” is a central role the federal government can play, Sullivan said.

Setting basic rules on who pays, how to track emissions and what kinds of offsets are acceptable would go a long way to bringing the existing provincial systems in line with one another.

It would also provide a foundation for other provinces to build their own systems on.

“It's not that a common model…and guidance across the provinces can't be done without Ottawa's support, but it would be a heck of a lot more efficient and less-costly to governments and business if Ottawa could step-in to provide this support and common infrastructure at the federal level,” Sullivan told DeSmog Canada.

Federal Leadership Needed

Policy analysts across the board agree carbon pricing on its own cannot solve Canada’s soaring GHG emissions problem. Yet it’s still a step in the right direction and likely won’t be done without strong leadership.

“It takes leadership, courage and vision to stand up and deliver a carbon pricing policy,” Merran Smith, executive director of Clean Energy Canada, said.

Clean Energy Canada, an energy think tank, recently took an in-depth look at the implementation of B.C.’s carbon tax and Quebec’s cap and trade program. They found the climate leadership of the premiers at the time — Gordon Campbell in B.C. and Jean Charest in Quebec — was “one of the key requirements to getting a carbon price in place,” Smith told DeSmog Canada.

“Those leaders also told us that putting in place a price on carbon was the (or one of the) thing they were most proud in their careers — which will hopefully encourage others to step forward,” she said.

The federal government also has an important role to play in implementing long-overdue oil and gas sector regulations, phasing out the use of coal and demanding greater efficiency in the transport sector — all of which nicely align with carbon pricing.

Beyond that, as a recent report from Clean Energy Canada demonstrated, Canada could do much, much more to support the clean energy sector.

Matt Horne, associate B.C. director at the Pembina Institute, said the federal government could simply begin by changing the conversation around carbon pricing.

“The first and easiest step the federal government could take is offer a more constructive voice on the issue, instead of regularly talking about a ‘job killing carbon tax.’”

“Talk about B.C.’s successful experiment or Quebec’s experiment — any of that will help facilitate a conversation in the country that is way more productive and way more constructive than what they have done to date which has been to attack and demonize carbon pricing approaches,” he said.

Image Credit: Clean Energy Canada

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Read At the Limits of the Market: Why Capitalism Won't Solve Climate Change, Part 1.

One answer to the question of why free market capitalism has failed to generate technological solutions to the crisis of climate change is that green innovation simply isn’t as profitable as speculation. In an era when financial markets generate record profits and investment banks are too big to fail, the long work of investment, research and construction of new energy infrastructure simply isn’t attractive to profit-seeking corporations.

Faced with the clear failure of the free market to respond to the approaching dangers of climate change, politicians have reacted by attempting to coax corporations into serving the needs of people as well as the bottom line. This is typically referred to as finding “market-based solutions.” It sounds good at first: we’ll harness the best minds in the private sector to develop new technology, create new jobs and solve climate change in the process.

But all too often the phrase “market-based solutions” works as a kind of coded communication. In effect, it signals to corporations that the government will not take any measures that could interfere with their business model. Rather than impose meaningful restrictions on emissions or the extraction of fossil fuels, market-based solutions focus on changing behavior by creating the right set of incentives.  

But without strong penalties to go along with those incentives—a stick alongside the carrot—market-based solutions simply end up creating profitable new markets without addressing the underlying economic drivers of climate change.

When the Kyoto Protocol was adopted in 1997, the creation of markets for trading carbon emissions (typically referred to as a cap-and-trade system) was established as the primary means of tackling climate change without endangering profits. The basic idea of carbon markets is simple: establish a cap or limit on the total amount of CO2 that companies can emit. That amount of carbon is then divided up and allocated to different companies through the creation of carbon permits: in order to emit any amount of carbon, each company needs the corresponding permits.[view:in_this_series=block_1]

For those companies that emit less than the allotted amount, carbon permits can be traded or sold for additional income. For those companies that produce carbon emissions over the limit, the need to purchase costly permits should function as a reason to innovate and develop low-carbon production methods.

But carbon emissions trading hasn’t lived up to its promise. The world’s largest market for carbon emissions trading, the European Union Emissions Trading Scheme (EU ETS), is failing. The European system is awash in excessive permits, meaning that the price of emitting carbon is so low that corporations have no incentive to clean up their production methods. At the global level, the United Nations Clean Development Mechanism (CDM) is suffering a similar fate.

As Steffen Böhm, director of the Essex Sustainability Institute at the University of Essex contends, “Carbon markets have lost us more than 15 years in the battle against climate change.” A combination of aggressive industry lobbying for additional permits, a lack of transparency and inadequate oversight mechanisms has simply turned carbon markets into yet another profitable arena for speculation, with no measurable effect in terms of reducing emissions.

One of the staunchest critics of the emissions trading approach is NASA climate scientist and activist James Hansen. Hansen has accused carbon markets of failing to rein in emissions and allowing “polluters and Wall Street traders to fleece the public out of billions of dollars.”

Hansen’s critique is more than grousing from the sidelines. Alongside groups such as the Citizens Climate Lobby in Canada, Hansen advocates an alternative approach to reducing emissions called fee and dividend. Although it remains a solution based on the market, fee and dividend takes a different tactic: rather than work to create new avenues for profit, it restricts markets, makes the fossil fuel sector less lucrative, and attempts to direct markets to meet human needs.

Unlike the cap and trade system, which is plagued by an opaque structure and dominated by bankers, industry insiders and technocrats, fee and dividend relies on a simple mechanism. It works by imposing a carbon fee directly at the point in which fossil fuels enter the economy: the port, the wellhead or the mineshaft. The collected fees are then distributed in their entirety to the population in the form of a monthly dividend. Everyone receives the same amount deposited directly into their bank account, regardless of income or assets.

The carbon fee would then increase each year, slowly making reliance on fossil fuels less and less economical, while driving incentive for green innovation. Since the increased cost of fossil fuels would then be passed along to consumers in the form of higher prices, the monthly dividend provides a cushion to compensate for higher heating and transportation costs.

The advantages of this system over cap and trade are clear and significant. It is simple and transparent, requires no new government bureaucracy, and does not create new opportunities for speculation. When coupled with the removal of all fossil fuel subsidies, it aims straight for the heart of the economic motor of climate change: cheap oil, gas and coal.

Crucially, fee and dividend also has a progressive dimension. According to a 2011 report by the Canadian Centre for Policy Alternatives (CCPA), the emissions of the top 1% of households are approximately three times the average, or six times greater than those of the bottom 10%. The report also shows that two-thirds of Canadians have average or below-average emission levels. Since every household receives the same size monthly carbon dividend, fee and dividend acts as a progressive income boost for lower-income, lower-emission groups. Plus, it provides an economic incentive for all Canadians to reduce their household emissions.  

By ensuring that the costs of reducing emissions are largely borne by the enormously profitable fossil fuel companies themselves, fee and dividend provides an equitable and effective way forward. With the window for action on reducing emissions rapidly closing, we can’t afford to wait for the market to decide that preventing catastrophic climate change is profitable.    

Art by Will Brown. All Rights Reserved.

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