The McNeil government’s carbon-reduction plan probably won’t work, say experts

Honey, get me re-write.

Most participants in yesterday’s panel discussion called “Cap-and-Trade 101” at Dalhousie University expressed concerns about the first draft of a policy released by the provincial Environment Department Wednesday. If enacted, that will put a price on carbon next January in compliance with a directive from Ottawa.

According to panelist Jason Hollett, who is the Province’s executive director of Climate Change, the goal is to further reduce greenhouse gas emissions and keep costs down for consumers.

Instead of imposing a per tonne carbon tax on fossil fuels, estimated to increase the price of gasoline by 11 cents a litre by 2022, the McNeil government opted for a less visible and more complicated cap-and-trade system that is supposed to result in smaller hikes in the price of gasoline, furnace oil, and electricity.

“We wanted something affordable for Nova Scotians,” said deputy energy minister Murray Coolican last January, “and a tax was not in the cards for us.”

Ontario and Quebec have also chosen cap-and-trade while BC and Alberta have imposed a flat carbon tax. The three other Atlantic provinces have yet to make a decision — an advisory group in New Brunswick has recommended a carbon tax — raising the distinctly awkward possibility that companies who operate in this small region of two million people would have to adapt to different regulations in different provinces with those costs passed on to the consumer.

The other three people on the Cap-and-Trade 101 panel — economist Elizabeth Beale, who served on Canada’s EcoFiscal Commission advising Trudeau on carbon pricing; Saint Mary’s University prof Kate Ervine, who has spent the past five years studying the design and implementation of cap-and-trade systems around the world; and Brendan Haley, a research fellow at Dalhousie’s School of Resources and Environmental Studies — are not opposed to the idea of cap-and-trade, but they are worried.  They fear the province won’t succeed in cutting greenhouse emissions enough if it focuses on keeping the price of carbon so low consumers will barely notice the difference.

“Cap-and-trade can be good if it triggers debate about the next generation of climate change policies,” Brendan Haley told the crowd at the first in a series of six discussions sponsored by the Ecology Action Centre, Clean Nova Scotia Foundation, and Dalhousie’s College of Sustainability. “We’re charged up to be able to make more reductions in carbon emissions. But it’s very political and if the primary concern of leaders is the fear of losing the next election because of rising energy prices, then these decisions could have long term consequences.”

The province has not yet set a cap on the total amount of GHG emissions it will allow  companies such as Nova Scotia Power, Lafarge (a cement manufacturer near Truro), Heritage Gas, and Irving Oil to emit over the first six-year period. Only about 20 companies that emit 100,000 tonnes of greenhouse gases a year will be part of the provincial cap-and-trade system, prompting Haley to question whether the Nova Scotia system “is liquid enough” to allow for any new energy intensive business to establish here.

Kate Ervine said whether the province sets that bar high or low for greenhouse gas emissions will determine if cap-and-trade succeeds or fails.

If reductions aren’t stringent enough, Ervine said carbon prices will stay low and people won’t reduce their energy consumption or switch to more fuel efficient vehicles.

Ervine produced numbers from the World Bank that predict worldwide prices for carbon need to be in the range of $100-$200/tonne if global warming is to stay below an increase of two degrees Celsius. Figures from November last year pegged the global price for carbon at only US $6/tonne, Ervine said, too low to make much of a difference.

“If we’re not bold, it won’t be a good thing for Nova Scotia,” Ervine predicted. “So far, we’re not falling on the bold side and that’s political. If the price ends up low, the incentives to build a green economy aren’t there.”

Both Ervine and economist Elizabeth Beale (the former president of the Atlantic Provinces Economic Council) see another potential design flaw in Nova Scotia’s draft cap-and-trade framework.

Here’s a hypothetical example of how it is set up: If the province intends to cut 100 tonnes of greenhouse gas emissions in a year, it would then distribute 100 “allowances” or permits to pollute among the companies who are the biggest emitters. If a company emits carbon above its cap, it would purchase an allowance from a company that comes in below the cap.

Under this “Made In Nova Scotia” cap-and-trade model, the province won’t take or make any revenue from the polluters. In other parts of the world (California, for example), the state auctions off those allowances or permits to the highest corporate bidder and distributes 25 per cent of that revenue to help low-income people affected by higher energy prices.

“I’m not sure this free permitting is a good idea,” said Elizabeth Beale. “Obviously there are political considerations and no one wants to be blamed for adding more cost to consumers, but the whole idea is that the cost of energy needs to go up. It was during the energy crisis in the 1980s that advances were made in energy-efficient buildings and lean manufacturing. Low-income people will be affected and under the proposed model, [and] the province has no revenue to address this. So it is very challenging.”

Ervine said “the free distribution of allowances shields heavy emitters from paying the cost of carbon.” Governments do that in part to maintain competitiveness and protect companies who trade in countries (such as the United States) that haven’t adopted carbon pricing. Unless there are safeguards, there’s no guarantee companies wont be tempted to take the subsidy and still pass on higher costs for reducing carbon through higher prices to consumers. Published reports say that’s what happened during the early years of cap-and-trade in the European Union when 19 companies made billions of dollars in windfall profits.

The province continues to seek feedback from citizens on the proposed cap-and-trade program. It’s early days yet. For more information on the next panel discussion at Dal in two weeks,  click here.