By Nick Clark
Many don’t think so. And carbon pricing – the tax designed to encourage polluters to reduce the amount of greenhouse gas they emit into the atmosphere - seems to be a big stick. If it’s painful enough, maybe consumers might change their habits around their consumption of energy.
Is it important that we meet the target or is it simply enough to show that we are on the offensive and moving in the right direction?
Varcoe: Climate plan could cost Alberta billions
New tariffs kick into gear in Alberta in 2017. But what's the cost? Chris Varcoe’s article in the Calgary Herald tried to quantify the number and reported that it would cost Alberta billions. Of course, the NDP say the analysis was invalid.
Leach: In retrospect on carbon pricing
In response to Varcoe’s article, here is what Andrew Leach, chair of Alberta’s climate change advisory panel, wishes he had said about the economic impact of carbon pricing in his report to Albertans. His views were published this week in a Maclean’s article.
This is an economist’s perspective in support of the new carbon tax. In part, here is Leach’s reply to Varcoe’s question.
“The policy package we are proposing to reduce emissions has the potential to impose some costs on the Alberta economy—there will likely be a real and measurable impact on GDP relative to a business as usual outcome, if we assume that Alberta would face no material economic costs from inaction on climate change.
“Based on internal and external economic modeling results, this impact will likely be on the order of 0.25 to 0.5 per cent cumulatively by 2022. In other words, the impact of the actions we propose could amount to approximately one day’s lost economic output in 2022. The impacts will depend on the decisions the government makes with respect to the use of revenues beyond those which we’ve suggested be used for renewable energy and energy efficiency programs—the more cost-effectively these revenues are used, the more modest the economic impacts will be.
“There are some impacts we were not able to quantify. While we were able access both private-sector and government economic models, we were not able to complete analysis of the impacts of reduced air pollution from our proposed policies on labour productivity and health care expenditures.
“Based on the latest economic evidence, we expect these impacts to be significant and positive and thus they would offset some of the negative impacts on GDP. We also have, as mentioned earlier in the report, limited quantitative evidence on the effects on emissions-intensive small and medium sized business. Unlike large emitters, these SMEs do not report their emissions annually, and so our ability to estimate effects is much more limited.
“We have, through the application of output-based allocations in large industrial sectors, sought to reduce the competitiveness implications for our emissions-intensive and trade-exposed industries far beyond what would be the case with a BC-style revenue neutral carbon tax. However, these measures will not be perfect and some industries and firms—those with high emissions and low value-added per unit emissions in particular—will suffer disproportionate effects, as will some individuals with particularly high emissions lifestyles. Based on modelling presented to us, and given the emissions-intensive nature of Alberta’s economy, there will likely be reductions in output, exports, and potentially some impact on total employment, relative to a classic business-as-usual case.
“However, it is our view that the business-as-usual case that a modeller might use to assess the costs of these actions does not exist for Alberta. We see today increasing pressure on firms to mitigate carbon risk, increasing pressure on governments to achieve their Paris commitments, and increasing focus on Alberta as a symbol of inaction on climate change. We do not see how a comparison to a case where Alberta can continue to find viable markets for its products and see investment return to the oil sands in the absence of credible action on greenhouse gases exists.
“What would likely exist as an alternative is a world where Alberta faces increasingly discriminatory and punitive policies and barriers to trade both from within and from outside Canada, and where firms face mounting shareholder and institutional investor pressure not to invest in Alberta. The costs of these are speculative, and more difficult to quantify, but we are confident that they far and away exceed the cumulative costs of the actions we’ve recommend. Simply put, if you assume there is no value in reducing emissions, you’ll find that there’s no value in reducing emissions. We believe that our policy recommendations will be of net benefit to Alberta, yes in terms of the avoided costs of greenhouse gas emissions and air pollution, but also in terms of the avoided costs of discriminatory and punitive policies imposed upon Alberta.
“Our policy package relies on economic evidence tailored to the specific, current circumstances of Alberta’s economy and proposes what we believe is a package which allows Alberta to go from defence to offence with respect to climate change policies, and do this in the economically smartest manner given the nature of the Alberta economy. It is our hope that this will allow Alberta to prevent discriminatory policies applied against our resources, to compete effectively for global market share, and to be a constructive partner as our federation moves to address climate change and to reduce the costs which our actions impose on others. Of course, we also expect that it will reduce Alberta’s emissions in a way consistent with the goals of the government and with the lowest aggregate cost to our economy.”
Did Dr. Leach answer the questions raised in Chris Varcoe’s article in the Calgary Herald? No one has yet to confirm the actual total cost impact on Albertans from the carbon levy. Clearly it is intended to be used as a behavioural change tool. It is not a silver bullet and just one of many initiatives that also need to be factored into the total cost.
Carbon tax is Phase One
In addition to the increased carbon tax there are going to be lots of other options considered over the years ahead. Here are 6 that I predict:
- More stringent regulatory rules;
- Banks or government offer creative equity financing;
- Energy efficiency programs adopted;
- Urgent innovative technology solutions to help offset carbon emissions;
- Mainstream companies step up and adopt clean-tech technologies;
- Tax credits or government subsidies paid to generators.