Market News

 June 27, 2007
Canada needs carbon price now: NRTEE

 Ottawa, Canada -- A 'carbon price' is urgently needed to achieve the government's long term targets for reducing greenhouse gas emissions, with a similar charge on air pollutants, says a new report submitted to the federal environment minister. The sooner a significant financial charge on emissions is implemented, the less economic growth will be constrained, says the National Roundtable on the Environment and the Economy (NRTEE).

The report was commissioned by the federal government to evaluate scenarios for reducing emissions of greenhouse gases (GHGs) and air pollutants in Canada in the medium and long-term. The Roundtable is examining the goals set out in the now abandoned Clean Air Act, which aimed to reduce GHG emissions by 45% - 65% below 2003 levels by 2050.

The NRTEE is also looking at deeper reductions, up to 80% below 2003 levels by 2050. Its final report, which will examine all three scenarios (45%, 65%, 80%), will be submitted to federal Environment Minister John Baird this fall. The range of scenarios will assist in development of the current federal regulatory plan, which commits to reducing GHG emissions by 60% to 70% below 2006 levels by 2050.

The report also examines targets for cutting air pollutants by 50% or 80% by 2050.

According to the NRTEE economic analysis, which estimates broad impacts but does not provide a detailed analysis on specific outcomes, significant charges need to be applied to greenhouse gas and air pollutant emissions to achieve the desired cuts.

"The immediate implementation of a clear, consistent, and long-term policy (such as an emissions price) by the government is critical," says the report.

For GHGs, the 'carbon price' would start at $10 per tonne of carbon dioxide equivalent (CO2e) in 2010, applied through an emissions cap-and-trade system, and/or a carbon tax. To achieve the 45% reduction target, that price would rise to $160-$200/t in 2050. To achieve a 65% cut, the price could range from $270 to $350 per tonne.

In each case, taking a "fast" approach, by implementing relatively higher emissions prices in the near term, results in the lower cost in the long term. A "slow" approach would see prices rise minimally before 2030, after which they would be required to increase drastically.

Further, NRTEE warns that any delay in implementing a carbon price may put long term targets out of reach and therefore require much higher emissions prices in the future. The group recommends setting and reaching medium-term targets in order to achieve the desired long-term results.

The report provides estimates the net impact on GDP compared to a 'business as usual' projection:

  • The "fast" approach aimed at meeting a 45% reduction target would have the least impact, costing Canada 0.5 years of growth between now and 2050, and reducing the size of the economy by 0.5% in 2050;

  • Taking the "slow" approach to make a 65% cut would cost 1.6 years of growth and shrink the economy by 1.5% in 2050; and

  • When averaged over the forty year period, the individual yearly costs over the period could range from 0.1% to 2.3% of GDP per year.

Air Pollutant Emission Reductions

The NRTEE also considers the possibilities for reducing emissions of air pollutants, including sulphur dioxide (SO2), nitrogen oxides (NOx), volatile organic compounds (VOCs) and particulate matter (PM).

The report concludes that reducing emissions of SO2, NOx and VOCs by up to 50% is achievable with a 'relatively modest' emissions price. Reductions beyond those levels would be much more costly, requiring new technologies or reduced output in some sectors.

  • For NOx, a future price of less than $10/kt is projected to achieve the 50% cut by 2050, while a price of up to $35 would be required to achieve an 80% reduction.

  • For SOx, a charge of around $10/kt would be enough to halve emissions, but deeper cuts would require a price of close to $100/kt by 2050.

  • VOC emissions could be cut by 50% by 2050 with a charge of up to $250/kt, while deeper cuts would necessitate a huge price jump -- up to $1750/kt by 2050.

For particulate matter, "high process emissions in several industries make reductions in the order of 50% prohibitively expensive," says NRTEE. While a charge of around $75/kt by 2050 would allow PM to approach 50% reductions, the modeling indicated that reductions of that magnitude would require reduced industrial output in some sectors, notably oil sands and mining.

For PM and VOCs, the models indicated that beyond a certain level, price increases would have no discernible affect, at around a 75% reduction for PM and at just under a 70% reduction for VOCs.

The NRTEE's Interim Report can be downloaded from the NRTEE website.

For More Information: NRTEE