Carbon pricing won't hurt Alberta and Saskatchewan: C.D. Howe

A federal carbon tax or emissions-trading system could easily be designed so it doesn’t hurt the carbon-intensive economies of Alberta and Saskatchewan, the C.D. Howe Institute says.

In a new report released Thursday, the think tank says there is no excuse for Ottawa’s foot-dragging on pricing carbon. Any concerns over damage to the two provinces with the highest emissions intensity is overblown, it says, because “the government has significant control over how the economic burden of climate policies will be distributed among provinces.”

Indeed, setting strict climate policies won’t necessarily cut corporate profits or lead to investment capital fleeing capital, the report says, because carbon-pricing policies can be set up to recycle any extra revenue through corporate tax cuts.

The study examines a number of possible scenarios for meeting Ottawa’s current targets of a 20-per-cent reduction of greenhouse gases from 2005 levels, by 2020. These include a form of carbon tax, where the government collects payments from companies in return for the right to emit CO2, and a “cap and trade” system, where companies must cut emission intensity by specified amounts but can trade credits.

In a cap-and-trade system, Saskatchewan and Alberta would actually be in a better position than many other provinces because they have cheaper options for reducing the emission intensity of their carbon-based businesses, the report says. Essentially, it is easier to clean up the emissions on a Prairie coal- or gas-based electric plant, than for Ontario or Quebec to cut emissions on an already-clean hydro project or nuclear plant.

In a carbon-tax scenario, Ottawa could return the revenue to the provinces in proportion to the contributions, thus levelling the playing field for Alberta and Saskatchewan.

Mark Jaccard, a Simon Fraser University professor who co-wrote the report, said it is time Ottawa set out its carbon-reduction policies.

“The federal government has … said ‘we have a target for 2020 and we promise Canadians we will achieve it,’ [but] they haven’t really implemented policies that would do that,” Mr. Jaccard said. Often, the excuse is given that any strict carbon policy would hurt Alberta and Saskatchewan, he said, but “the point is, you can design the policies so you can mitigate that effect.”

Even if Canada goes ahead with a national system before the United States makes a similar move, it won’t hurt our businesses significantly, the C.D. Howe survey suggested. The models created by the institute showed a decline in gross domestic product of 0.02 per cent or less if Canada imposed a carbon policy while its trading partners did not.

“An economy can bear some costs for carbon, even when its major competitors aren’t there yet,” Mr. Jaccard said, so that’s no reason to delay putting rules in place.

Mr. Jaccard, who advised the British Columbia government on the implementation of its carbon tax, noted that some U.S. states have renewable energy standards in place that are driving up electricity costs, so there are imbalances in various jurisdictions already. However, there is lots of room to adjust other policies to make sure an economy doesn’t suffer, he said. “You just can’t get too far out front.”

Canada is in no danger of being in that position, he said, because our emissions targets are so modest. If the Conservative government today put in place policies designed to achieve its 2020 targets, “we could do those [without significant economic consequences] even if the Americans weren’t acting at all.”

But the longer the government waits to clarify the carbon-pricing rules, the more difficult it will be for Canada to meet any targets, no matter how modest, Mr. Jaccard said. The goal is to shift the economy away from carbon-generating activity, he said, and that needs to be done gradually so business has time to adjust.

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