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Federal and provincial climate change policy: Repeating past mistakes?

Federal and provincial climate change policy: Repeating past mistakes?. Nic Rivers Queen’s Institute of Intergovernmental Relations October 17-18, 2008. Outline. Lessons from Canada’s climate change history Current provincial and federal greenhouse plans Emission reduction targets

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Federal and provincial climate change policy: Repeating past mistakes?

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  1. Federal and provincial climate change policy: Repeating past mistakes? Nic Rivers Queen’s Institute of Intergovernmental Relations October 17-18, 2008

  2. Outline • Lessons from Canada’s climate change history • Current provincial and federal greenhouse plans • Emission reduction targets • Emission reduction policies • How to structure an integrated approach to climate policy in Canada

  3. 1. Lessons from Canada's climate change history

  4. G7, Rio (1992) Kyoto (1997) World Conference on Changing Atmosphere (1988) Canada’s Climate Change Timeline Turning the Corner Climate Change Plan for Canada Project Green 900 Action Plan 2000 National Action Program 800 Green Plan 700 600 500 Canadian GHG Emissions (Mt CO2e) 400 300 200 100 0 1990 1995 2000 2005 2010 Source: Environment Canada, 2008, “Canada’s Greenhouse Gas Inventory, 1990-2006”.

  5. Why we failed to reduce emissions • Near-complete reliance on voluntary programs and modest subsidies • Voluntary programs have failed because significant GHG abatement is costly • Subsidies have failed because of free-ridership, rebound effect, and limited government spending ability • Both represent a piecemeal approach that only covers a fraction of total emissions • No broad carbon price or cap was applied • Policies were not consistent with targets

  6. Kyoto Analysis • Kyoto Protocol reflects 20-30 percent reduction from ‘business as usual’ emissions for Canada/US • In 2000, various models were used to estimate economy-wide GHG price required for reaching Kyoto targets: • For Canada • CIMS: C$120/t CO2 Rutherford: C$102/t CO2 • MARKAL: C$50/t CO2 SGM: C$160/t CO2 • ABARE: C$250/t CO2 BMRT: C$71/t CO2 • For the US • MIT: C$120/t CO2 EIA: C$157/t CO2 • EPRI: C$127/t CO2 PNNL: C$100/t CO2 • CRA: C$133/t CO2 WEFA: C$120/t CO2 • On average: over $100/t CO2 • In contrast, we considered (but did not implement) a carbon price of $15/t CO2 on a subset of emissions Source: Wigle, R., 2001, “Sectoral Impacts of Kyoto Compliance”, Industry Canada. Natural Resources Canada, 2001, Analysis and Modeling Group Roll-up Report.

  7. What we learned (or should have) • Significant reduction in emissions requires stringent policies • It is difficult to reduce emissions quickly • Voluntary policies and subsidies are unlikely to significantly reduce emissions • Fragmented policies (covering only a subset of emissions) will not reduce overall emissions

  8. 2. Current provincial and federal climate change plans

  9. Comparison of emission targets Source: Environment Canada, 2008, “Canada’s Greenhouse Gas Inventory, 1990-2006”. Bollinger, J. & Roberts, K., 2008, “Building on our Strengths”, Canada West Foundation. Various provincial climate change plans. Western Climate Initiative.

  10. Comparison of emission forecasts Source: Environment Canada, 2008, “Canada’s Greenhouse Gas Inventory, 1990-2006”. Natural Resources Canada, 2006, “Canada’s Energy Outlook”.

  11. Required emission reduction to meet mid-term (2020) targets Increasing Policy Stringency Source: Calculations.

  12. Marginal abatement cost curves Source: Calculations using CIMS model.

  13. Marginal abatement cost curves Source: Calculations using CIMS model.

  14. Estimated marginal cost of targets Source: Calculations using CIMS model.

  15. Existing and forthcoming emission pricing policies Source: Provincial and federal climate change plans. “Highlights of Provincial Greenhouse Gas Reduction Plans”, 2008, Pembina Institute

  16. Déjà vu, all over again? • Policies proposed by governments appear to be significantly below the stringency required to meet targets • In addition, key policies only cover a subset of emissions and are uncoordinated • Much focus has been on targets rather than policies • Targets are already very challenging to meet; further delay in policy implementation implies that targets will be impossible to meet at a reasonable cost

  17. 3. Federal-provincial issues in climate policy

  18. Recommended policy for deep GHG abatement • Climate change policy is currently fragmented between provincial and federal levels, and only covers a subset of emissions in most provinces • Almost all analysts recommend an economy-wide carbon pricing policy for effective and efficient GHG reductions • Cap and trade (upstream, not just large emitters) • Carbon tax • This recommendation is complicated by Canada’s governance and economic structure

  19. Comparison of per-capita emissions Source: Environment Canada, 2008, “Canada’s Greenhouse Gas Inventory, 1990-2006”.

  20. Alternative policy approaches

  21. Federal carbon tax • Price set federally • Revenue collected federally • Proceeds from carbon tax distributed by federal government • Pros: economic efficiency, administrative simplicity • Cons: difficult politically

  22. Provincial carbon tax • Minimum price set federally (equivalency agreement) • Provinces can exceed minimum price if desired • Pros: • All revenue collected provincially (provided provincial tax is implemented) • May be more politically palatable by avoiding revenue transfers • Cons: Administratively more complex

  23. Federal cap and trade • Federal government determines cap, covered sources, and permit allocation • Federal government decides on flexibility mechanisms (offsets, safety valve, borrowing) • Pros: improved economic efficiency from linked systems • Cons: potentially significant interprovincial wealth transfers

  24. Provincial cap and trade • Federal government determines overall cap and covered sources • Burden for GHG reductions is shared amongst provinces • Provinces allocate permits amongst sources • Pros: permit allocation is done by provincial governments to reflect provincial circumstances; less interprovincial wealth transfer • Cons: overall economic efficiency could be reduced because of non-coordinated allocation of emission permits; allocation of provincial burden would be difficult

  25. Conclusions • It appears unlikely that currently proposed policies will be sufficient to meet provincial and federal GHG targets • Most provincial and federal 2020 targets probably cannot be met in the short time left with politically realistic policies • Regional issues complicate climate policy in Canada, but designs can accommodate these issues • Policy designs can allow significant provincial participation, but federal government leadership is key to any successful design

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