Wpg Free Press: Has carbon pricing really worked so far?
The following is an article written by Robert Parsons, an instructor in the Asper MBA program at the University of Manitoba. It was originally published in the Winnipeg Free Press on Aug. 1, 2018.
Free Press readers were recently treated again to the refrain that “carbon pricing works,” in this case from two British Columbia economists (Taxpayers will back a carbon tax if they get paid, July 18). To be accurate, their statement should instead have indicated carbon pricing is one tool, based on economic fundamentals, that can help in reducing emissions. Further, it is equally important to state that its effectiveness depends both on the price level as implemented, and on the sensitivity to price changes of the consumers involved. These distinctions are subtle, but important in the end. Not just any price will work.
The two economists were reacting to the decision of Ontario’s premier-elect to end cap-and-trade. Some inflammatory comments about “rip-offs” were noted; what was missing is that it was actually stated cap-and-trade would be ended in Ontario because it doesn’t work. But is this true? Given carbon-pricing arrangements as currently established by the federal government, a surprising answer emerges.
It is increasingly evident that Canada will never meet its stated reduction commitment on greenhouse gas emissions by 2030, as required under the Paris agreement. The federal carbon price is just far too low. This has been known for some time in considering a carbon tax. Although it’s buried in an archive, it is still possible to access the final report of the Working Group on Carbon Pricing Mechanisms under the Pan-Canadian Framework.
This 2016 report clearly shows even if a higher carbon tax of $90 per tonne is used, Canada will not come even close to its target. Similarly, on cap-and-trade, a recent report by the Montreal Economic Institute suggests a much higher permit price is required for that approach to work.
Further evidence comes directly from British Columbia itself, the poster child for carbon taxes, which were implemented there in 2008. While sophisticated econometric analyses suggest carbon taxation is effective, I looked instead at the end result, the emissions. These are publicly tabulated each year for each jurisdiction across Canada as part of the National Inventory Report.
Conveniently, Environment Canada includes a subcategory called “energy,” which involves primarily the sum of emissions from liquid fossil fuels, natural gas and any fuels used in electricity generation — in other words, the items applicable for carbon pricing.
In looking at data from 2005 through 2015, total energy emissions in British Columbia remained very steady, with no upward or downward trend over time. Energy emissions averaged 50.5 megatonnes per year (plus or minus 2.4 per cent), not much change. It can be argued carbon taxes prevented emissions from rising, but they certainly did not drop. In other words, in the long run, carbon taxes, at the relatively low prices employed, have not successfully brought down emissions.
Interestingly, Ontario is not the only province to balk on carbon pricing. Earlier, Prince Edward Island released its carbon plan, which includes no price. P.E.I. reiterated a key point which was also made by Manitoba, questioning whether federal plans are really about reducing emissions or raising taxes. Legitimate alternative approaches do exist.
Frictions with the federal government are building here already, given Manitoba’s intent to maintain a constant price of $25 per tonne, while the federal government wants it higher, up to $50 per tonne. On this, students from my class recently confirmed a valid compromise to address a looming confrontation. Manitoba has, for some time, been a leader, with much higher biofuels content requirements than the national standard. The extra biofuels incrementally offset other fossil fuels, which can be translated to the equivalent price level of a carbon tax required to achieve the same reduction.
Further, the students found the equivalent prices for extra biofuels to be at least $25 per tonne or more, meaning the price gap can be easily met. We hope to have these results printed by the fall.
Unfortunately, federal plans on emission reductions appear to consist of few real actions and mostly just talk. Of greatest concern is the constant casting of blame by the federal government at others, including provinces and former prime minister Stephen Harper. This is not helpful, and is disingenuous. Around 2010, Harper’s government implemented the Renewable Fuels Regulations, which have resulted in significant emission reductions in the range of four to six megatonnes annually. Credit needs to be given where it is due.
Further, while the Conservatives certainly have been favourable to resource development (where properly managed), they never stooped to buying pipelines.
There are harsh realities associated with emission reductions, none of which have been openly acknowledged by the federal government. Emission reductions are hard, and can involve painful changes. Carbon pricing disproportionately impacts low- and fixed-income Canadians. It is indeed emission reductions that count in the end, and pricing is just one tool to get there.