No magic bullet to combat climate change according to U of S and U of R researchers

SASKATOON – There is no clear-cut solution to reaching the federal target of a 30 per cent reduction in greenhouse gas (GHG) emissions by 2030. Instead it will require a combination of policy instruments, including a national carbon price, according to experts at the University of Saskatchewan (U of S) and the University of Regina (U of R).

A new research paper written by the Johnson Shoyama Graduate School of Public Policy (JSGS) at the U of R and the U of S entitled, “Climate Change: The Challenges, Policy Options and Implications,” sets out the complexity of climate change in a global and Canadian context.

The objective of climate policy is to change public behavior to reduce GHG emissions, and each option outlined comes with costs and potential benefits. In the case of a carbon price, the federal government intends that the revenue generated by the price – whether a tax or through a system of cap and trade – will remain in the jurisdiction where it is raised. Depending how the revenue is used, the negative effects of a carbon price can be more than offset.

“The breadth and depth of the climate change issue is such that no one policy instrument is sufficient to meet Canada’s 2030 GHG reduction target. There is no magic bullet,” said Dale Eisler, who was one of the paper’s co-authors and a senior policy fellow at JSGS. “All the tools in the policy toolkit – whether a carbon price, regulation or technology – must be used if governments are truly serious about tackling an issue that has defied a public policy solution for decades.”

Using the federal government’s Pan Canadian Framework on Clean Growth and Climate Change as the policy foundation, the study examines a carbon price, an emissions-based allowance regulatory system, and the use of technology as policy levers to reduce GHG emissions. The study applies an input-output based economic analysis to determine the economic consequences of each option. It also examines the legal arguments relating to a possible constitutional challenge to the federal government’s proposed implementation of a national carbon price.

“None of the policy choices available is without problems. They will make maintenance of our current lifestyle more expensive, difficult or just plain illegal,” said Jim Marshall, JSGS executive-in-residence. “But our current lifestyle is the cause of the expected outcomes of climate change. However negative the effects of current action may appear to existing lifestyles, they must be evaluated against the serious consequences of unabated climate change many years into the future.”

As with the policy issues, the constitutional question requires that governments work co-operatively.

“The changing climate, literally and figuratively, render federal and provincial legislation, regulations, and policies less than certain in constitutional justification,” said Margot Hurlbert, JSGS professor. “As always, co-operative federalism provides less uncertainty and more flexibility, as long as ultimately the policy problem of climate change is addressed.”

If policymakers are serious about addressing it in a truly effective way that meets Canada’s national commitment and international obligations, it will require co-ordinated action by the federal and provincial governments. In that reality, the study urges the Government of Saskatchewan to take a leadership role in working with the federal government.

“For all its challenges and complexities, crafting effective climate change policy should be treated as an opportunity for governments to show they have the capacity and ingenuity to address what is a wicked problem,” said Jeremy Rayner, professor and director of the JSGS U of S campus. “It is time to demonstrate that Saskatchewan has not forgotten how to lead policy innovation on a critical issue for Canada and the world.”

The e-paper and a policy brief summary were co-authored by Rayner, Hurlbert, Eisler and Marshall.

Climate Change: The policy options and implications for Saskatchewan (Policy Brief - summary)

Saskatchewan and Climate Change: The Challenges, Policy Options and Implications (full-length report)

Refer to the appendices (below) for a few core findings from the report.

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For further information contact:
Erica Schindel, Communications and Marketing Specialist
Johnson Shoyama Graduate School of Public Policy, University of Saskatchewan
306-966-2663 | erica.schindel@usask.ca

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Carbon Tax Option

In terms of a carbon tax, the paper examines the electricity, oil and gas, agriculture and railway sectors in Saskatchewan.  At a mature level of $50 a tonne in 2022 as proposed by Ottawa, it found:

• A tax “shock” of $757M/year to the electricity sector would have a negative GDP impact of $606M/year and a reduction of 1,968 jobs by 2022;
• The oil and gas impact would reduce GDP by approximately $570M annually and cost 780 jobs;
• Taxes on agriculture would lead to GDP decline of $150M/year and reduce jobs by 1,404; and
• Through the railway sector, GDP would fall by $32M and cost about 300 jobs.

Conversely, revenue raised from the tax, which the province estimates will be $2.5B, can more than offset negative economic consequences. With the proceeds other measures can be taken, such as income tax and/or sales tax reductions, or government spending that will have stimulative economic impacts and increase employment.

Regulatory Option – Cap and Trade

Under the regulatory system proposed by Ottawa, entities with annual GHG emissions greater than 50,000 tonnes would be subject to regulatory restrictions. The paper assumes that only Saskatchewan’s coal generation electricity sector would come under emission limits, as other industries could meet the federal government’s best-in-class standard and be exempt. Based on those assumptions, it found:

• Output-based allowances would add about $800M to the cost of electrical generation by 2022;
• GDP would be reduced by about $640M and cost 2,080 jobs upon full implementation; and
• If SaskPower passed along the full cost of the carbon price to ratepayers, it would cost the typical household an additional $561 annually.

As with a carbon tax, there would be a revenue flow in Saskatchewan from a regulatory system of approximately $800M that could be spent on other programs, or to reduce taxes, offsetting these economic consequences. For example, the government could eliminate the provincial corporate income tax. Spending on government programs would have a positive economic impact of between five and 30 per cent greater than the negative impact through electrical generation.

The Technology Option

A combination of low, or no-carbon technologies, such as nuclear, carbon capture and storage, solar, wind and geothermal, among others, for electrical generation is also a policy option. SaskPower is committed to increase its share of renewable energy sources to 50 per cent of its capacity by 2030, while using CCS to reduce emissions from its current coal-power generation. It projects that its strategy will reduce GHG emissions by 40 per cent from current levels.

Using Statistics Canada’s multipliers of 0.80 for GDP and 2.60 for jobs per million dollars of impact for “electrical power generation, transmission and distribution”, the study found:

• An expected negative GDP impact of $632M and a loss of 2,054 jobs, assuming SaskPower reaches its goal in 2030;
• Increased costs to SaskPower of $790M a year based on its proposed technology option, adding 35.5 per cent to its total operating costs; and
• The average household electricity bill rising by about $553 annually.

As with a carbon tax, or cap and trade, there could be economic offsets from the additional spending to develop alternative technologies. The narrow application of the technological option to only electrical generation limits its effectiveness because it has no direct impact on individual behaviour, other than through electrical rates.

One criticism of the province’s approach to CCS as a viable strategy is that CCS only makes sense in the context of a planned transition to a low-carbon future.  In that future, clean electricity will replace fossil fuel use in a host of applications from personal transportation to home heating. As the International Energy Agency has repeatedly argued, as demand for clean electricity will only increase, CCS becomes a key transitional technology both here and in other parts of the world where coal will continue to be used in power generation.

The Constitutional Question

The Saskatchewan government maintains that the federal government does not have constitutional authority to impose a carbon price on the provinces. The position hinges on Sections 91 and 92, which set out provincial and federal jurisdiction. Provincial jurisdiction includes property and civil rights, intra-provincial trade and natural resources.

One argument is that section 125 prevents the federal government from imposing a tax on the provinces, making a tax applicable to SaskPower, which is a major GHG emitter, unconstitutional.

Although the federal government does not have jurisdiction over the sources of GHG emissions, an argument can be made that it has authority to address the impact of GHG emissions because their effects are not limited by provincial boundaries. Another argument is that under Section 132 the federal government has the authority to enter into and carry out its international treaty obligations, such as the Paris climate change accord. A recent independent opinion sought by the Manitoba government concluded the federal government does have constitutional authority to impose a national carbon price.