Here’s what everyone seems to be missing in the PBO’s climate policy math

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The simple math of climate policy rarely makes for straightforward politics.

Consider this week’s analysis by the parliamentary budget officer, and the respective responses of the Liberals and Conservatives.

Canada’s greenhouse gas emissions are projected to decline to 592 megatonnes by 2030 — a significant reduction, but still 79 megatonnes above the target to which this country has committed. In the interests of framing future policy actions, the PBO estimated the sort of additional carbon levy that might be needed to eliminate those remaining megatonnes.

According to the PBO, that new carbon tax, applied broadly, could start at $6 per tonne in 2023 and rise to $52 per tonne by 2030.

The Conservatives were, perhaps predictably, aghast at the suggestion. But that puts Andrew Scheer’s Conservative opposition in the odd position of complaining about the cost of meeting an international target that was first established by Stephen Harper’s Conservative government — a government in which several of Scheer’s frontbenchers were cabinet ministers.

The high cost of regulation

Using their own math, Scheer’s side calculated that a new tax like the one described by the PBO would raise the price of gas by 25 cents per litre. But while they were bemoaning this hypothetical future burden, the Conservatives may have skipped over a crucial sentence in the PBO’s report.

“Of course, other policy measures (such as regulations) could achieve the same emissions target,” the PBO’s analysts write at page 6 of their report, “but they would likely have a larger impact on the Canadian economy.”

In short: there are other ways to reduce emissions, but those other ways won’t be less expensive.

But then, Environment Minister Catherine McKenna also was not eager on Thursday to embrace any suggestion that a higher, or additional, carbon price might be deployed to further reduce emissions.

“The plan is not to increase the price post-2022,” she said.

Technically, that’s true. Under the current national framework, the price of carbon will increase $10 per tonne each year, reaching $50 per tonne in 2022. What would happen after that is not clear. And even the NDP, while it vows to be bigger and bolder on climate policy than the Liberals, has so far declined to promise a higher price on carbon.

If McKenna is reluctant to endorse a future increase to the national carbon price, it’s surely not just because she doesn’t have a federal-provincial agreement that commits to doing that.

Good policy, bad politics?

While any number of economists would happily line up to say that a price on carbon is the most efficient mechanism for reducing emissions — that a carbon price would achieve reductions at the lowest cost to the economy — the political feasibility of the policy remains in doubt.

In part, that’s because the cost of the policy is explicit. And in part, that’s because conservative parties in Canada have spent much of the past decade attacking the policy as a harbinger of economic doom.

The PBO’s analysis is limited insofar as it relies on the federal government’s current emissions projections, which do not yet include modelling for reductions that might occur from investments in public transit and clean technology, as well as newer policies such as plans to curb the use of plastics. It also can’t account for other subsidies and regulations that the federal government might introduce.

Though regulations — command-and-control policies that set out a hard limit or a new requirement on an industry’s activities — can cost more than a price on carbon, there can be both political and practical reasons for using regulations to attack a specific problem.

Governments likely will end up using some combination of all available options — both Alberta Premier Jason Kenney and Ontario Premier Doug Ford, for instance, have maintained elements of carbon pricing in their provincial plans, even while they condemn the federal price.

The Liberals have spent the last four years putting together their preferred mix. Scheer’s Conservatives will apparently explain next week what they’d do differently. At that point, ideally, it will be possible to make a real comparison.

In that respect, this month’s most interesting report on climate policy was actually released on June 4. In partnership with Canadians for Clean Prosperity, Dave Sawyer and Seton Stiebert of EnviroEconomics compared the costs of the Ford government’s current Ontario plan to the Trudeau government’s federal backstop.

Ford, of course, had campaigned on repealing Ontario’s cap-and-trade system and fighting the federal price. His government is preparing to mandate that anti-carbon tax stickers be affixed to every gas pump in the province and is already running publicly funded television ads that criticize the federal policy.

Premier Doug Ford’s government is pursuing a climate change policy that could end up costing Ontario more than the federal carbon pricing plan. (Cole Burston/Canadian Press)

“A carbon tax isn’t the only way to fight climate change,” the television ad concludes.

That’s technically true. But what Sawyer and Stiebert found is that the Ford way will actually be more expensive. 

“We estimate the total cost of the Ontario Plan in 2022 is $334 million with an average cost of $62 per tonne removed. To achieve the 18 Mt reduction in 2030 sought by the Plan, we calculate the average cost per tonne of emissions removed is $69 per tonne with a total cost of $1.23 billion,” they write.

“The cost of the Federal approach for the same level of emission reductions is estimated to be $214 million in 2022 with an average cost of $40 per tonne removed. In 2030, total costs are $811 million with an average cost of $45 per tonne.”

Per household, they estimate that the Ontario plan will cost $94 in 2022 and $181 in 2030. But under the federal plan, which generates revenue that can then be rebated to individuals, households actually receive $71 more than they will pay in 2022, and then they’ll pay a net cost of $24 in 2030.

Sawyer and Stiebert also questioned whether Ontario’s plan would achieve its desired emissions reductions.

This level of analysis should be front and centre if the next four months are to be spent arguing about climate policy.

For all the political arguments we’re hearing about climate policy, there are just three simple questions every proposed policy ought to answer. By how much will it reduce emissions? How much will it cost to do so? And how does that compare to the alternatives?



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