Carbon price comparison shows B.C. is not a laggard

Even with a price freeze, province’s carbon tax still higher than Ontario’s, Quebec’s

B.C.'s 40% reduction by 2030 in this chart is based on CLT recommendations, which have not been implemented in the new climate action plan.
A character in an Oscar Wilde play defined a cynic as someone who knows the price of everything and the value of nothing.

When it comes to carbon pricing, it’s easy to fixate on the price rather than its value as a carbon reduction tool, and recently the Pembina Institute has taken a cynical view of B.C.’s commitment to battling climate change.

B.C. has frozen its carbon tax at $30 per tonne since 2013, and despite recommendations from its own Climate Action Team (CLT) to start raising it by $10 per tonne after 2018, there have been signals that the tax might continue to be frozen at $30 until a national carbon scheme is announced.

In June, the Pembina Institute labelled B.C. “a climate laggard when compared to Canada’s other most populous provinces,” based on the carbon tax freeze and the fact that B.C. will not meet its 2020 greenhouse gases (GHG) reduction targets.

But is B.C. truly a climate change laggard?

Not according to the Ecofiscal Commission, which recently compared carbon pricing in B.C., Alberta, Ontario and Quebec – the only provinces to either have a price on carbon or plans to introduce one.

B.C. has had a carbon tax since 2008. It started at $10 per tonne, rose to $30, and has been frozen there since 2013. Alberta will implement a $20 per tonne carbon tax next year that will rise to $30 per tonne in 2018.

Ontario is introducing cap and trade, with carbon prices to be $19.40 per tonne by 2020 – the same as Quebec’s.

But as the Ecofiscal Commission points out, there’s more to carbon pricing than just the price. B.C.’s carbon tax applies to only 70% of the economy; Alberta’s will be broader, at 78% by 2020, and Ontario’s will cover 82%.

B.C.’s carbon tax does not apply to non-combustion sources such as the CO2 and methane vented or leaked in natural gas processing. Alberta’s and Ontario’s carbon prices, on the other hand, will apply to non-combustion sources from industry.

The real value in carbon pricing isn’t necessarily the price itself, but its stringency.

“If a policy applies a high price to only a narrow share of the province’s emissions, it will drive relatively few emissions reductions,” the Ecofiscal Commission states in its “Comparing Stringency of Carbon Prices” report.

In other words, B.C. could keep the carbon tax frozen at $30 per tonne but broaden it, as the CLT has recommended, and still get significant stringency from it.

Nancy Olewiler, director of the School of Public Policy at Simon Fraser University, was a member of the Climate Leadership Team that made that recommendation and is one of the authors of the Ecofiscal Commission’s recent comparison of carbon prices.

Olewiler doesn’t think that keeping the carbon tax frozen for the short term will weaken B.C.’s position on climate change. It depends on what other recommendations it implements, or doesn’t implement, when it updates its Climate Action Plan.

The updated plan was released on Friday after Business in Vancouver’s print edition deadline. For a report on the plan, go to www.biv.com.

“I would love to see a commitment to increasing carbon pricing,” Olewiler said. “I am not going to die on the hill that it has to start in 2018. I’m not going to say it’s a total failure because they haven’t done that.”

However, she added: “The longer we wait, the faster it’s going to have to rise.”

Even if B.C. does nothing more with its climate action plan, the efficacy of its current policies shows it’s no laggard.

The real value of any policy is its stringency – its ability to reduce GHG emissions.  And on that score, the Ecofiscal Commission cites studies that show the emissions to be reduced in B.C. by 2020 at between 5% and 15% compared with 7% in Alberta, 11% in Ontario and 15% in Quebec.

But again, the numbers by themselves can be misleading. A 7% reduction in Alberta could be significant because it’s 7% of a very big GHG profile, whereas B.C.’s GHG profile is already comparatively low, primarily because most of its electricity comes from hydro and wind power.

When B.C. introduced its carbon tax in 2008, it was assumed that other jurisdictions would soon catch up. They are only doing so now.

The true laggard in Canada is Saskatchewan, which is putting up roadblocks to a federal plan to introduce a nationwide price on carbon.

In its comparison, the Ecofiscal Commission weighed things like how broadly the tax is applied and how emissions trading between Ontario, Quebec and California can lower the costs for the two Eastern provinces.

Once those adjustments are made, B.C. currently has the highest adjusted per-tonne carbon price: $21 compared with $7.50 in Alberta.

By 2020, assuming B.C. keeps the carbon tax at $30 per tonne, Alberta will have the highest adjusted price: $23.40. The adjusted prices in Ontario and Quebec would be around $18 in 2020 – still lower than B.C.’s.

Alberta’s new climate action plan is simple and aggressive and reflects how far it needs to go to catch up to other provinces in terms of GHG reduction.

Like B.C., Alberta’s principle climate action tool is an economy-wide carbon tax. It also has an emissions cap for the oil industry and an aggressive plan to phase out coal power.

Ontario’s climate action plan is complex and expensive. Instead of a carbon tax, it uses cap and trade and earmarks more than $8 billion in subsidies for things like energy efficiency programs.

Alberta already produces a disproportionately high amount of GHGs, thanks largely to the oil industry and because it generates 90% of its power from fossil fuels (51% from coal, 39% from natural gas).

B.C., by contrast, generates roughly 95% of its power from hydro, wind and run-of-river power. Quebec also gets almost all of its power from hydroelectric dams.

But should a liquefied natural gas industry develop in B.C., it could complicate B.C.’s climate action plans. If the industry fails to take off, climate action in B.C. becomes much easier.

Natural gas extraction and processing account for 16% of B.C.’s GHG profile, according to the CLT. That GHG footprint could double with a single large LNG plant.

Even with an LNG industry, however, the CLT says B.C. can meet its GHG reduction goals, if it implements all of its 32 recommendations.

The CLT recommended mitigating LNG-related emissions through electrification of the gas fields, carbon capture and storage and better engineering to reduce fugitive methane leaks.

“If we adopted the full package … we would still meet the targets,” Olewiler said.

The Business Council of BC has urged the B.C. government to continue the carbon tax freeze until other jurisdictions have caught up.

Cement plants and greenhouses are among business that could suffer from carbon prices that are too high compared with competing provinces, states and countries that don’t have carbon pricing.

As Ecofiscal Commission chairman Chris Ragan points, if a high carbon tax drives an industry to move across the border to a U.S. state where there is no carbon tax, it’s a lose-lose situation because it means a Canadian province takes an economic hit and no net GHG reduction has been achieved.

“There absolutely is that danger,” Ragan told Business in Vancouver. “But you can deal with it.”

Trade exposed, emission-intensive industries can be given special breaks, like free emissions permits, for example. Another tool is border carbon adjustments. Cement imported into B.C. from China or the U.S., for example, could have a carbon tariff applied to protect B.C. cement producers.

“You can deal with this problem,” Ragan said. “The competitiveness issue is important, but it shouldn’t be an excuse for not doing policy.”

See online story on new climate action plan: No carbon tax hike in B.C.'s new climate action plan .

nbennett@biv.com