Market News

 October 13, 2009
Thinking Outside the Climate Change Box

 GLOBE-Net - Velma McColl, a principal of the Earnscliffe Strategy Group in Ottawa specializing in energy and the environment, has written a remarkably lucid and insightful assessment of the dilemma before Canadian politicians with respect to climate change.  

McColl says finding ways to reduce greenhouse gas (GHG) emissions is a global and intergenerational challenge that will test our capacity to realize a dramatically different future, one where we will adapt to changes in the climate while arresting and reversing the impact over time.  

But Canada - a resource-rich country that searching for its place in the new global economy - continues to wrestle with its own energy and climate change approach. A dozen years after signing the Kyoto Protocol, we have still not set binding national targets or implemented effective policy instruments to reduce our GHG emissions, she says. 

Our failing speaks for itself. Canada’s emissions have grown by 30 percent since we signed on to the Kyoto Protocol. For the last decade, despite our rhetoric, we have fallen into the old environment-vs.-economy duality and have placed a higher priority on growing GDP including our energy and oil sands production.  

McColl observes that Canada cannot claim to be serious about addressing climate change until we make fundamental shifts in our energy, building and transportation infrastructure. Before we can finance those investments, we must openly debate the consequences of various carbon policy targets and tools. 

In Copenhagen in December, governments will try to set the terms of a low-carbon future where 80 percent of greenhouse gases will be gone by 2050. The prospects of a global deal this year are minuscule.  The hard reality is that Canada will not hit anything approaching 20 percent reductions by 2020 (our current target) or 80 percent by 2050 (the new international proposal) without our society finding ways to reduce energy consumption, introduce new technologies and finance massive investments to modernize our transportation, building and energy infrastructure.

Today, writes McColl, the benchmarks for success in solving an issue that will be part of the lives of our children and their children have been reduced to a confusing scorecard of ever-shifting global, federal and provincial targets. It’s impossible for the public to tell what’s happening and what options are better - or how they might be implicated. 

While immediate actions are certainly essential, we need to recognize that transformation on the scale required means 5 -, 10 - and 20-year horizons to maximize results, which in turn require an injection of realism, some political cooperation and public patience. This brings us back to tough financial and political choices facing governments, industry and consumers for the foreseeable future. 

The dilemma is clear, she says. Unless we diversify and de-carbonize our energy sources and replace high-emitting products with cleaner ones, we will not significantly reduce GHG emissions. And the corollary is that those energy sources and new products will cost more in the short term because they have a built-in environmental premium. 

Canadian bureaucrats and politicians have skirted the issue for a decade,  she says, except to offer a backstop price to industry a few years ago to help quantify investment risk. Since then we have struggled with which policy instrument to choose - either a carbon tax or a cap-and-trade system. 

Taking our cue from the Obama Administration, Canada appears to be headed toward a modified cap and-trade regime federally that sets the initial price for carbon through a technology fund and works cooperatively with provincial systems. An additional note is that the current US cap-and-trade proposal also sets an initial carbon price and promises both a floor and a ceiling to protect industry and consumers from price spikes in a potentially volatile new commodity market. 

Environment Minister Prentice reaffirmed this point recently in an address to the Council of Chief Executives where he noted ""At the same time, we also realize that the North American economy is integrated to the point where it makes absolutely no sense to proceed without harmonizing and aligning a range of principles, policy, regulations and standards."

"We will set up our own cap-and-trade market - one that is designed for specific Canadian industrial sectors - but in a way that will be easily integrated into a North American market for carbon permits. Accordingly, we’ll phase in measures over time, in alignment with the development of the proposed U.S. system." Jim Prentice, Minister of the Environment

Environmentalists, mostly privately and a few publicly, still argue that the most efficient economic instrument to stimulate permanent changes in our lifestyles and economy is a broadly based carbon tax. But no federal politician is going to touch that one, particularly with an election campaign looming.  

Climate change is not going to get less complex, so we’re going to have to change the national conversation to break this deadlock.  

If the US continues to delay passing or enacting specific GHG regulations, Environment Minister Jim Prentice will have a tough choice about whether to proceed with Canadian domestic regulations alone, committing to policies that may or may not be matched by our largest trading partner.  

Our electoral uncertainty and jockeying will not help us calmly consider environmental and economic options, but there continues to be a strong case that a comprehensive North American arrangement on energy and climate change is in Canada’s long-term interests.  

It seems that the only thing worse than waiting for the US to act on regulations is not waiting - even under President Obama.

Climate change rules will affect energy exports and thousands of products that cross our borders. What the US decides on carbon pricing, emissions trading and equitable treatment of industry absolutely matters to Canada, and we need to be careful not to add another layer of environmental competitiveness and trade complexity to our relationship.  

Unfortunately, the old economy vs environment trade-offs are echoing in the halls of international negotiations too. Today, it seems the chances of overcoming the stalemate are slim for 2009, although a negotiating framework may be produced to help achieve a new global treaty sometime in 2010.  

McColl concludes by noting that before we will make the tough decisions to transform our domestic, North American and global energy systems, we are going to need real change in our political ecosystems as well.  

The article - Thinking Outside the Climate Change Box: Changing Our National Conversation - appears in the October edition of Policy Options. It is reproduced here with the kind permission of the author. You can read the full article here

For More Information: Policy Options