Significant hike to carbon prices necessary to achieve emissions targets, study finds

Theglobeandmail.com
Jan. 21, 2018
By Shawn McCarthy

Federal and provincial governments will have to increase carbon prices dramatically in order to meet targets to reduce greenhouse gas emissions from passenger cars – or rely on series of regulatory measures that are even more costly, a study released by the Laurier Centre for Economic Research concludes.

Faced with political battles over its planned carbon tax, the Liberal government is also developing complementary regulations to drive down GHG emissions in the transportation sector – rules that are costlier but more politically palatable than an explicit levy.

Transportation accounts for roughly 25 per cent of Canada's GHG emissions, with cars and light trucks making up nearly half of the sector's total. Ottawa and the provinces are putting in place a raft of measures to reduce emissions, including carbon prices, fuel efficiency standards, zero-emission vehicle policies and a clean fuel standard.

A carbon tax is clearly the economically efficient way to reduce emissions in the sector while the various regulations and subsidies have impacts that are less noticeable to the public but far more costly, environmental economists Nicholas Rivers and Randall Wigle say in the report released by the Laurier Centre.

The hidden costs of those regulations and subsidies are borne by consumers in the price of fuel and new vehicles, by industry and by taxpayers.

The study "would suggest the price is the most cost-effective way to achieve a GHG target, but there are obviously barriers to putting a high price on carbon," Dr. Rivers, a professor at the University of Ottawa, said in an interview.

"Partly, it's political – people don't want to see this overt price that changes the price of gasoline so obviously. Partly, it's geopolitical in that we don't want to get too far ahead of our trading partners with a high price for a fear of making some of our industry uncompetitive."

Under the Liberal government plan, carbon taxes would rise to $50 a tonne by 2022 - roughly 11 cents per litre of gasoline.

To achieve a 10-per-cent reduction in emissions over seven years would require a levy of $175 a tonne, though that cost can be reduced if revenues are recycled back to households, the study concludes. Canada has committed to reduce GHGs over all by 30 per cent between 2005 and 2030.

Environment Minister Catherine McKenna said last week that there is no commitment to raise the price beyond $50, but that Ottawa and the provinces will make that decision when they review the plan in 2022. Last week, the United Conservative Party in Alberta released a federal Finance Department document - obtained by the website Blacklock's Reporter - that indicated Ottawa is planning to raise the price after 2022.

The federal rule will apply in provinces that don't have their own carbon pricing or fail to meet Ottawa's standards. Currently, Quebec, Ontario, Alberta and British Columbia meet federal thresholds. Saskatchewan Premier Brad Wall has been a vocal critic of the tax, while Alberta's United Conservative Party Leader Jason Kenney vows to scrap the provincial levy should he win power in the 2019, a move that would provoke a battle with the federal Liberals.

Canadians generally support climate-change policies, including carbon pricing, said Jonn Axsen, a Simon Fraser University professor who has done public polling on the issue. However, there is far more opposition to an explicit carbon tax than to the regulatory approaches whose costs are less visible, he said.

The Laurier Centre study makes it clear that meeting Canada's emissions targets for road transportation will be expensive, whatever policies are adopted.

Ottawa has regulations requiring car makers to increase the fuel efficiency of their vehicles, which reduces emissions per kilometre driven.

It is also developing a clean-fuel standard that will force gasoline and diesel marketers to reduce the GHG intensity of their fuel. British Columbia has a similar system and credits sell for $175 per tonne in the open market.

As well, the federal government is developing a zero-emission vehicle (ZEV) strategy which would complement electric-vehicle subsidies offered by Ontario, Quebec and British Columbia. Quebec also has an EV mandate requiring auto makers to sell a certain percentage of electric vehicles, though federal Transport Minister Marc Garneau has said Ottawa is unlikely to follow suit with its own mandate. EV subsidies and mandates represent by far the most expensive options, the Rivers-Wigle study found.