FEATURES : Why Carbon Price?

YYour challenge, engineers and geoscientists, should you choose to accept it, is to bring forth fresh ideology and innovation in infrastructure and technology that would curb greenhouse gas emissions (GHG).
For now, Canada’s solution to reducing GHG emissions is a tax. Brett Dolter, an assistant professor in the department of economics at the University of Regina, presented a solid argument on taxing CO2 at the recent APEGS annual meeting and professional development conference.

“We’ve had this pretty clear trend of increasing CO2 over the past century,” he said.

“Re-radiated heat is the problem we face now – that heat is trapped by the greenhouse gases and it results in a higher temperature on our planet.”

Effects of Climate Change

Dolter cited numerous examples of how atmospheric pollutants may have contributed to climate change – extreme in some cases.

The top five recorded temperatures on this planet have been recorded over the past five years.

More heat in the atmosphere means there’s more energy in the atmosphere. Increased energy triggers more intense storms and a higher potential for damage to infrastructure.

We’ve seen powerful hurricanes and subsequent flooding in the southern U.S. Widespread wildfires torched much of California last summer.

Closer to home, it is possible climate change could result in Saskatchewan experiencing hotter summers, with the potential becoming greater for decades-long droughts. Wildfires in the north could become more intense and more frequent.

“All of this carries real economic costs,” Dolter explained. “Climate change is creating costs and destroying capital. It impacts our well-being. It leads to lower productivity and lower output. We have to account for that and hopefully find ways to keep it in check.”

Saskatchewan a Major Culprit

In Canada, the federal government implemented a nation-wide carbon price, beginning at $10 per tonne of carbon dioxide equivalent emissions in 2018 and rising to $50 per tonne. In April, a carbon tax was introduced in Saskatchewan.

Since 2013, Saskatchewan and Alberta are among the planet’s largest emitters of GHG gases per capita – because of our heavy reliance on our industrial economy. Other than New Brunswick, we are more than six times any other province and several European countries.

To get from where we are now to the target goal, we have a 200-million tonne emissions gap. That is the equivalent to 20 Boundary Dam coal power plants going offline or shutting down 100 Co-Op refineries – our two biggest emitters.

“This is a big task to meet that reduction,” Dolter said. “That’s asking a lot to shut down that equivalent. We need to find ways to reduce our emissions without shutting down industry.”

Price Signals

Dolter reflected on Paul Romer’s argument for carbon pricing, citing, “carbon pricing can drive innovation,” said the Nobel Prize-winning economist from New York University’s Stern School of Business. “It sends a signal to entrepreneurs to the market that we’re increasing this price over time and there are opportunities for you to develop and sell products that help people reduce their pollution.”

“The problem is not knowing what to do. The problem is getting a consensus to act.”

Romer continued: “If we start encouraging people to find ways to produce lower carbon energy, everybody’s going to be surprised at the progress we’ll make as we go down that path.”

“All we need to do is create some incentives that get people going in that direction, and that we don’t know exactly what solution will come out of it — but we’ll make big progress.”

Far to Go

But the world as a whole has not made progress.

In a united front, Canada and hundreds of countries have attempted to tackle the rising concerns with climate change through a reduction in GHG emissions – the Kyoto Protocol in 1992; the Copenhagen Accord in 2009 and the Paris Agreement in 2015. Each year, the goalposts were moved on the intended target number.

In Paris, the agreed upon goal was to keep the increase in global average temperature to well below 2 Celsius above pre-industrial levels and to limit the increase to 1.5 °C. To reach this targeted goal, there needs to be an 80 per cent reduction in GHG emissions by 2050, and net negative GHG emissions in the latter half of the century.

China is by far the global leader in GHG emissions, with the U.S., a distant second. Canada doesn’t register in the top five, yet it will require collective action by all countries to solve the problem.
“The policy is very simple,” Romer said. “If you just commit to a tax on the usage of fuels that directly or indirectly release greenhouse gases, and then you make that tax increase steadily in the future, people will see that there’s a big profit to be made from figuring out ways to supply energy where they can do it without incurring the tax.”

Problems with Carbon Pricing – And Solutions

There are three main critiques of carbon pricing and the choice of how to spend carbon pricing revenues can help address them:

• Carbon leakage: Companies may leave for jurisdictions that do not impose a carbon tax. This would result in lost economic activity and no real reduction in GHG emissions. This threat can be alleviated by rebating carbon pricing revenues back to vulnerable, trade-exposed firms.
• Regressive distributional impact: Energy expenses are a higher proportion of earnings for low-income households, Carbon pricing expenses will be a higher proportion of earnings for low-income households. This issue can be addressed by sending carbon pricing revenues back to households in the form of rebate checks.
• Slower economic growth: Rebates might slow the economy. Without carbon pricing, the Canadian economy will grow at 2.03 per cent. With carbon pricing at $30/tonne and with rebate cheques, the economy will grow at 1.91 per cent per year. Growth only slows to 2.01 per cent if carbon pricing revenues are used to cut corporate incomes taxes. This means there are trade-offs to consider when deciding how to spend carbon pricing revenues.

On the flipside, B.C. has had a carbon tax since 2008 and it has reduced its emissions anywhere from five to 15 per cent, with no negligible impact or production performance.
In closing, Dolter likened society’s culture shift in climate change to turning around the Titanic.

“You can’t turn it on a dime because the ship would turn over. But you can turn it slowly over time. Carbon pricing puts a hand on the rudder and begins steering us in the right direction.”