Don’t fixate on carbon pricing: Mark Jaccard (UPDATED)

Canada’s carbon price doesn’t need to be $200 per tonne – $40 will do, if other policies are adopted

SFU energy economist Mark Jaccard: $200 per tonne carbon price could be politically impossible to sell.

The Trudeau government may be able to achieve its Paris climate change commitments without imposing high, politically unworkable carbon prices, says energy economist Mark Jaccard.

Jaccard is the lead author of a new report published by Simon Fraser University’s School of Resource and Environmental Management, where Jaccard is a professor.

It was published just days after federal Environment Minister Catherine McKenna announced her government will impose a national carbon pricing scheme, with or without the cooperation of provinces like Saskatchewan, where Premier Brad Wall has emerged as Canada’s most vocal carbon tax critic.

In an email to Business in Vancouver, Wall said Jaccard has done "some important work on the fiscal and environmental implications of carbon taxes. Our current national debate on climate change would improve, to the extent we consider his research."

The report is a pragmatist’s approach to a low carbon economy for politicians facing public reticence to carbon pricing. It recommends “flexible regulations” for certain key sectors, such as industry, transportation and power generation as an alternative, and special exemptions for trade-exposed sectors.

It is, in part, a challenge to carbon tax dogmatism promoted by some of Jaccard’s fellow economists and academics at institutes like the Ecofiscal Commission and C.D. Howe Institute, where he a fellow.

“We try to counter misinformation, whether in the media, politics or from academics,” he told Business in Vancouver.

“That was one motivation for this report – there was this rising chorus that had a lot of academics behind it saying we must price emissions. And that is factually wrong, and I have an ethical problem with experts saying that when they know it’s wrong.”

While Jaccard says a simple, broad-based carbon tax like the ones B.C. and Alberta have either implemented or plan to implement may be the cheapest and most effective tool, they aren’t the only ones available. Regulation can work, too.

“As an economist, I have to be honest: That (flexible regulations) will be slightly more expensive,” Jaccard said. “The carbon tax is always the most economically efficient way to reduce emissions.”

In terms of actual emissions reductions, the report states that the most effective climate change policies to date has been Ontario’s ban on coal power plants.

But as Ontario’s Liberal government is now finding out, it has come at a high cost in more ways than one, as soaring electricity prices in Ontario are now a serious concern for a government facing re-election in 2018.

No one likes new taxes, and carbon taxes in particular have proven to be a hard sell, as Stephane Dion learned when he lost the 2009 election to Stephen Harper. Jaccard believes Dion’s platform, with climate change and carbon pricing featuring as central planks, was largely responsible for Dion’s loss.

The Canadian government has committed to reducing the nation’s greenhouse gas emissions (GHG) by 30% below 2005 levels by 2030.

But as Jaccard points out, Canadian governments have set targets before and failed to achieve them – in 2000, 2005 and 2010.

Achieving the new Paris targets using carbon pricing alone – a carbon tax or cap and trade – would mean the government would need to set a national carbon price at $30 per tonne and increase it every year by $15 to $200 per tonne by 2030 – something that could prove virtually impossible to sell.

“It is highly unlikely that our political leaders will implement such a price, given the severe political consequences,” the report states.

It therefore recommends a mix of carbon pricing and regulations that would allow for a much lower – and palatable – national carbon price of just $40 per tonne by 2030.

The report suggests, for example, that governments that choose to provide subsidies to help industry get GHGs down should be allowed to do so and get credit for it as an equivalent to a carbon tax.

The report cites Saskatchewan’s $850 million investment in a carbon capture and storage project for the Boundary Dam coal power plant as an example.

It calculates the Bounday Dam CCS project to have an “implicit” carbon price of $60 to $80 per tonne. Closing a coal power plant in Ontario would have an implicit carbon price of $80 to $100 per tonne.

Saskatchewan Premier Brad Wall welcomes that suggestion.

"For Dr. Jaccard, the path forward appears to be clean energy regulations on high carbon emitters," Wall said. "I have already said Saskatchewan will consider these measures, as economic conditions improve. 

"I believe the federal government's current emphasis on carbon pricing is an approach that will have the least impact on global GHG emissions, while potentially doing the greatest harm to the Canadian economy."

One example of carbon reduction regulations – in place in California – is a policy that requires a certain percentage of vehicles sold to be zero or low emission vehicles (electric cars, for example).

Economist Chris Ragan, chairman of the Ecofiscal Commission and a C.D. Howe fellow, makes no apologies for championing carbon pricing as the best way forward to a lower carbon economy.

“We do not argue that there shouldn't be other complementary policies,” he said. “But we absolutely argue that the main plank of a sensible and cost effective way to reduce emissions should be a carbon price.”

The way it is structured, however, is important. The Ecofiscal Commission is pushing a model of “recycling” carbon revenues to either cut taxes elsewhere or finance infrastructure.

B.C.'s carbon tax, for example, is revenue neutral, which means that whenever it goes up, taxes elsewhere go down.

Ragan said a carbon tax would be more palatable if industry and ordinary Canadians saw taxes go down elsewhere. He adds that attitudes have changed and that there is more public support for putting a price on carbon than there was just a few years ago.

“When people say to me, 'We can't have a carbon price that high,' I usually respond by saying, 'Why can't we have income taxes that low?' A carbon price can absolutely work, even if the revenues are used to finance other tax reductions.”

Ragan thinks it odd that Jaccard would argue for a system that might be more expensive than carbon pricing in order to make it more palatable politically.

“If you think that the carbon price that you need to achieve your targets is a high price – which is probably correct – but that that's not feasible, but some other approach is better, then what they're really arguing is in favour of another approach that is actually costlier for the economy.”

One thing Jaccard and the Ecofiscal Commission agree on is that, whatever climate change policies are adopted, it is critical that they have stringency. Whether they are regulations or carbon pricing, they need to consistently increase in stringency to be effective, which is why Jaccard and others have a problem with B.C. Premier Christy Clark.

Nearly a decade ago, B.C. adopted what has been acknowledged to be a highly effective climate chance action plan, but with the carbon tax frozen at 2012 levels, that plan now lacks stringency.

“The carbon tax is declining in value because of inflation,” Jaccard said. “Every year it gets a little bit weaker.”

Clark has been under pressure from energy-intensive, trade-exposed industries not to get too far ahead on carbon taxes, however, lest it put them at a competitive disadvantage to states, provinces and countries that have either low or no carbon pricing.

But Jaccard’s report addresses those concerns by recommending special adjustments for certain industries.

“Our flexible regulations scenario deliberately provides favourable treatment to these trade exposed sectors,” the report states.