SECRET CARBON TAX
Liberal policy worrying
It’s the green policy paradox. Governments want to achieve greenhouse gas reductions at the lowest possible cost, yet, in order to incentivize more environmentally friendly behaviour, the price of pollution must be driven ever higher.
The Trudeau Liberals have touted their ability to balance the demands of the economy and the environment but as we close in on the Paris climate change targets — a reduction in emissions 30 per cent below 2005 levels by 2030 — this is a government that is losing its sense of equilibrium.
The latest test of its principles will come in this month’s throne speech, where the Liberals will start to explain how the Canadian economy will reach net zero emissions by 2050.
Part of that explanation will involve the introduction of the Canadian Fuel Standard, a regulatory regime that will require all supplies of fossil fuel to reduce carbon content.
But signals coming out of Ottawa in advance of the throne speech indicate that the extra charges coming to consumers and businesses will be costly, as home-heating bills and the price at the pumps dig even more deeply into Canadian pockets.
Businesses, meanwhile, are potentially looking at double-digit percentage increases in energy costs. As Canadian individuals and business-owners are finally emerging from their Covid-induced hibernation, the Liberal government is putting together a plan to make their post-pandemic lives more expensive to meet, or even beat, its climate targets.
The CFS has been in the works since the
Liberals came to power but the crucial details in the draft regulations were delayed by COVID and are now expected to be published in the Canada Gazette in a matter of weeks.
While the introduction of the carbon tax was a political firestorm, the fuel standard has been a slow burner that has gone largely unnoticed — at least by consumers.
Jonathan Wilkinson, the federal minister for environment and climate change, said the CFS will diversify the economy and promote investment in clean solutions. “It will create opportunities for farmers and companies producing renewable fuels, will encourage investments in energy efficiency to help Canadians save money and will promote faster development of zero emissions vehicles,” he said in a statement.
ANYONE RECEIVING THESE FUELS IS AT THE MERCY OF SUPPLIERS.
When the details are released, Ottawa will push the green recovery and jobs angle, claiming winners will include farmers and others who create biofuels, while the prospect of processing new low carbon alternative fuels will attract foreign direct investment.
Industries that will bear the brunt of the costs are less enthralled.
The government likes to say the fuel standard is complementary to the carbon tax. But as industry groups point out, it is an addition to existing carbon pricing — a second cost layered on the same emissions, over which many companies that use fossil fuels in their production processes have no control.
“It will be a disastrous policy,” said Bob Masterson, president of the Chemical Industry Association of Canada. “Anyone receiving these fuels is at the mercy of suppliers with no ability to effect the cost of compliance.”
Unlike the carbon tax, the CFS offers no exemptions for large emitters in trade-exposed industries. That’s because the government assumes regulated entities will simply pass on the costs downstream to producers and consumers.
The cost implications for households and industry are unclear but a study by the Canadian Energy Research Institute in May 2019 estimated the impact of a 20 per cent reduction in carbon intensity. CERI suggested a total fuel decarbonization cost of $15.3 billion a year, adding $84 or four per cent to household fuel bills; $62 or 2.8 per cent to the cost of gas; and 13 per cent to fuel costs for industry.
The model proposed by the government allows businesses that can’t comply with the regulations to buy credits to make up the shortfall. In the CERI model, those credits were estimated at $200 per tonne of carbon dioxide.
But as an indication of where this government is coming down on the green policy paradox, the price of credits under the CFS will be set at $350 per tonne, in order to force companies to invest in cleaner fuel, rather than simply buy credits. The higher the cost of the credits, the larger the price impact on solid, liquid and gaseous fuels.
Wilkinson is said to have requested an internal study to find out the break point — the price that would be required for people to turn away from fossil fuels.
The Liberal government has indicated that its target of an annual 30 megatonne reduction in greenhouse gas emissions by 2030 will require a 12 to 14 per cent reduction in carbon intensity, depending on fuel type.
Those variables mean the CERI estimate is a reasonable ballpark figure for the additional costs Canadians can expect to bear in a couple of years.
The clean fuel standard is not a new idea — California and British Columbia have had regimes in place since 2009. Advocates point out that in both jurisdictions the carbon intensity of fuel was reduced and the renewable content increased. Critics point out that the cost of gas also increased and total emissions did not go down because of economic growth.
The new CFS will adopt a “life cycle approach”, which means carbon content will be gauged at various stages from raw material extraction to processing; from manufacture to distribution.
Certain sectors such as the plastics industry worry that ever-tightening regulations will send the cost of natural gas skyward and offer them no ability to limit the expense.
Aside from the potential for strangling the economic recovery, the other obvious concern is the impact on national unity.
The accusations that Ottawa is adding to the burdens of the oil and gas producing provinces will surely follow the introduction of the draft regulations.
Figures released late last year show that Canada is on course to miss its Paris targets — annual emissions of 511 megatonnes in 2030 — by around 77 megatonnes.
Despite this, in his mandate letter Justin Trudeau urged his environment minister to “exceed” that target. Wilkinson is said to have taken the message to heart. His department has modelled more aggressive emission reduction numbers and, if the minister can win the support of his Cabinet colleagues, it is possible that the 2030 national greenhouse gas target could change, sources said.
If the government is to meet its current goal, or even exceed it, Ottawa will have to curtail the expansion of the oilsands.
Critics claim the CFS is an important policy instrument to do just that. Ottawa is set to present the new fuel standard as an opportunity for Western farmers to grow biofuels and will point out the main costs are set to be borne at refineries in Ontario, Quebec and New Brunswick.
It is an argument that many people in Western Canada are likely to find utterly unconvincing.