Matthew Bramley of the Pembina Institute testified to the Clean Air Act Legislative Committee last week on behalf of Pembina and the Climate Action Network (CAN-RAC). They've published their briefing note on both websites. In a nutshell, it proposes that the forthcoming emissions trading system for big industry use absolute rather than intensity-based targets; set targets at 1990 -6% levels; keep a price cap but raise it to $30/tonne; include long term, gradually tightening targets; and move gradually from 100% free allocation to auctioning of permits. The overall 1990-5% target translates to 127 Mt for industry, roughly half of Canada's "Kyoto Gap", rather than the 45-55 Mt hoped for under the Liberal LFE system and the much anticipated Clean Air Industrial Regulatory Acronym (sorry, Agenda). Pembina and CAN-RAC say that costs will be reasonable - increases of less than 1.5 cents/kWh for coal-generated electricity and $1.50/barrel of oil sands oil at the worst.
Link to the briefing note
My comments: Great stuff. Another thorough, well-researched proposal from these folks. It turns the LFE system into something much closer to an ideal emissions trading system while still leaving industry room to breathe via the price cap and competitiveness allowances (forgot to mention this - their breakdown of industry into three sectors gives manufacturing much lower targets, reflecting their lower emissions growth since 1990. This reduces impacts on the LFEs with the most vulnerability to international competition).
Wednesday, February 28, 2007
Carbon taxes at the heart of FoE climate plan
Friends of the Earth Canada and Corporate Knights released a climate change plan today centred on carbon taxes. It takes the large final emitter carbon tax/carbon subsidy they proposed a month ago and adds a general carbon tax on fuels. Overall cost to an average family - 450-900$/year.
Zero Leakage Carbon Investment Fund
Link to Globe coverage
Link to full FoE plan (10 pages)
My comments: Looks interesting, and I'm happy to see comprehensive new proposals, especially ones that include a carbon tax, complete with double dividend. I'm less sure of the carbon investment fund since I imagine it would be hard for many industries to use it effectively within a 3-year window. Re the carbon tax, I can see using some of it for CDM and infrastructure projects, but I would recycle as much of it as possible into the income tax reductions. Overall, it will be interesting to see what reaction they get.
Zero Leakage Carbon Investment Fund
- 30$/tonne CO2e tax on LFE emissions (15$/tonne for manufacturing initially, and possibility of exemptions for businesses in dire straits)
- starting in 2008
- revenues from the tax held by the arms-length Carbon Innovation Fund
- Each LFE has 3 years to spend the tax revenue taken from it on CIF-approved reductions at its own facility.
- Use of unused revenue - not specified
- Anticipated earnings - $9.5 billion/year
- Increases to electricity costs: 1-3 cents/kWh
- $50/tonne CO2e on transportation fuels
- starting in 2008
- increases cost of gasoline 10 cents/litre
- annual revenues - $9 billion/year
- 50% used to reduce income taxes for households under $80 000 annual income
- 33% for transit pass subsidies and rail and transit infrastructure
- 17% for international Clean Development Mechanism credits
- $50/tonne CO2e
- starting in 2008
- annual revenue of $4 billion/year
- funds used for a "Green Building Fund" providing zero-interest loans for efficiency/conservation measures
Link to Globe coverage
Link to full FoE plan (10 pages)
My comments: Looks interesting, and I'm happy to see comprehensive new proposals, especially ones that include a carbon tax, complete with double dividend. I'm less sure of the carbon investment fund since I imagine it would be hard for many industries to use it effectively within a 3-year window. Re the carbon tax, I can see using some of it for CDM and infrastructure projects, but I would recycle as much of it as possible into the income tax reductions. Overall, it will be interesting to see what reaction they get.
Clean Air Act Legislative Committee on Target Setting
The transcripts are now available for meetings 7 through 10 of the legislative committee on Bill C-30. Here's a summary of meeting 7, which focused on target setting, with much additional discussion on policy. The committee heard from Greenpeace, the Canadian Chamber of Commerce (CCC), the National Round Table on the Environment and the Economy (NRTEE), and Dr. Marc Jaccard of SFU. Political sparring between the committee members was remarkably low.
Greenhouse Gas Emissions Targets: Greenpeace reiterated the long term CANet targets of 25% below 1990 by 2020 and 80% below 1990 by 2050. No one else advocated a specific target. NRTEE presented on its work on achieving a 60% reduction by 2050, and the CCC emphasized the need to respect investment cycles and Canada's energy-intense economy. Dr Jaccard made the point that setting targets is irrelevant if you don't have the policies in place to achieve them. Everyone agreed with a key NRTEE point - that long-term targets are needed ASAP, and that short-term targets have to be developed within a long-term plan.
Achieving Canadian Kyoto targets: Greenpeace says its achievable, but when pressed didn't have a detailed analysis of how. The CCC says it is impossible without doing very serious damage to the economy. Dr. Jaccard says at this point it isn't doable - domestically it is impossible and international credits will be in short supply, potentially causing price spikes. He also talked about his work in 98-99 for the feds, where it looked like the only way to achieve Kyoto domestically would have been the equivalent of a $120-150$/tonne carbon tax starting in 2000.
Emissions intensity targets: Lots of discussion on this. Greenpeace says its a bad idea and often gets used to mask lack of absolute reductions. They cited Canada's 1990-2004 intensity gain of 14% while absolute emissions rose 27%. The CCC supports the intensity approach because it doesn't penalize emitter growth. Dr. Jaccard says that intensity targets can work but you will need the capacity to increase them if growth exceeds predictions.
Emissions trading: Some discussion of the large final emitters system (now of course the "Clean Air Industrial Regulatory Framework"...who comes up with these zingy names? so catchy!) Greenpeace advocates absolute targets, no permit price cap, and having industry cover 50% of our reductions (this would make for a much more ambitious target than the 45-55 Mt aimed at right now). Dr Jaccard points out that the LFE/CAIRF system will be compulsory and so will probably achieve some reductions, but that still leaves the other half of the economy.
Policy effectiveness: Dr Jaccard focused on this issue. He cited a few big trends based on global experience to date with climate change policy:
Link to all transcripts.
My comments: The most interesting thing for me here was Jaccard's comments on policy effectiveness, especially the key point that we need to focus on compulsory policies. I found his point on energy efficiency interesting; its also been made by George Monbiot in his book Heat. I haven't had a chance to look at energy efficiency in depth so I won't comment on it further. Re our Kyoto targets, I'm pretty much convinced by the mountain of respected Canadian environmental analysts chiming in to say its just not possible at this point. What I'd like to see now, though, are some proposals for achievable domestic reductions. How close to Kyoto can we get?
Greenhouse Gas Emissions Targets: Greenpeace reiterated the long term CANet targets of 25% below 1990 by 2020 and 80% below 1990 by 2050. No one else advocated a specific target. NRTEE presented on its work on achieving a 60% reduction by 2050, and the CCC emphasized the need to respect investment cycles and Canada's energy-intense economy. Dr Jaccard made the point that setting targets is irrelevant if you don't have the policies in place to achieve them. Everyone agreed with a key NRTEE point - that long-term targets are needed ASAP, and that short-term targets have to be developed within a long-term plan.
Achieving Canadian Kyoto targets: Greenpeace says its achievable, but when pressed didn't have a detailed analysis of how. The CCC says it is impossible without doing very serious damage to the economy. Dr. Jaccard says at this point it isn't doable - domestically it is impossible and international credits will be in short supply, potentially causing price spikes. He also talked about his work in 98-99 for the feds, where it looked like the only way to achieve Kyoto domestically would have been the equivalent of a $120-150$/tonne carbon tax starting in 2000.
Emissions intensity targets: Lots of discussion on this. Greenpeace says its a bad idea and often gets used to mask lack of absolute reductions. They cited Canada's 1990-2004 intensity gain of 14% while absolute emissions rose 27%. The CCC supports the intensity approach because it doesn't penalize emitter growth. Dr. Jaccard says that intensity targets can work but you will need the capacity to increase them if growth exceeds predictions.
Emissions trading: Some discussion of the large final emitters system (now of course the "Clean Air Industrial Regulatory Framework"...who comes up with these zingy names? so catchy!) Greenpeace advocates absolute targets, no permit price cap, and having industry cover 50% of our reductions (this would make for a much more ambitious target than the 45-55 Mt aimed at right now). Dr Jaccard points out that the LFE/CAIRF system will be compulsory and so will probably achieve some reductions, but that still leaves the other half of the economy.
Policy effectiveness: Dr Jaccard focused on this issue. He cited a few big trends based on global experience to date with climate change policy:
- voluntary policies don't work - we can't depend on subsidies, information campaigns and moral suasion
- we can't count on energy efficiency - its more expensive to implement than thought, and there is evidence that the energy saved just gets used up by new energy-using devices
- we need compulsory policies - his biggest point - be it cap and trade, a carbon tax, or standards, policy needs to have teeth
- focus on emissions rather than efficiency.
- the likely winners - he sees them as a mix of zero-emissions fossil fuels, renewables, nuclear, and some efficiency. ( I should point out that he's well-known and somewhat controversial for his writing on clean coal and other fossil fuels technology)
Link to all transcripts.
My comments: The most interesting thing for me here was Jaccard's comments on policy effectiveness, especially the key point that we need to focus on compulsory policies. I found his point on energy efficiency interesting; its also been made by George Monbiot in his book Heat. I haven't had a chance to look at energy efficiency in depth so I won't comment on it further. Re our Kyoto targets, I'm pretty much convinced by the mountain of respected Canadian environmental analysts chiming in to say its just not possible at this point. What I'd like to see now, though, are some proposals for achievable domestic reductions. How close to Kyoto can we get?
Tuesday, February 27, 2007
the Clean Air Industrial Regulatory Agenda
The Globe and Mail has been analyzing leaked documents describing the Conservative plan for an emissions trading system for big industry. Basically, it looks like the Liberals' old Large Final Emitters (LFE) system, with slightly tougher targets and of course a brand new name. Unfortunately, this means that most of the flaws of the old LFE system could still be present:
One plus of the draft Conservative system: long term, gradually tightening targets - it sets out targets for not only 201-2015, but stricter targets for 2015-2020. This gives predictability to industry, particularly for capital investment decisions.
So what would the ideal Canadian emissions trading system look like? Here are some key points:
Link to further Globe coverage
Link to a US EPA Guide to desigining and operating a cap and trade program - a great resource covering all of the topics discussed above.
- intensity targets - the biggest flaw - no guarantee that absolute emissions will decline. It also makes for a more complex system to set up (you need to set targets for all kinds of industrial products), and leaves a lot of room for industries to negotiate relatively soft targets without the general public noticing.
- free permits - the emitters in the system will (I am assuming here) once again get their permits free. Given international experience so far with emissions trading, this is a big transfer of wealth to industry, and will likely give many emitters a windfall profit, without necessarily rewarding good work.
- an offset system - again, I'm assuming the Conservative model will reflect the Liberal original, here. The LFE system included a complementary offset system, where farmers, landfill operators, etc. could sell credits to the big emitters based on carbon sequestration or methane capture. An offset system can in theory be a great market-based tool, but is very complex to set up and administer (lots of project evaluation methodologies) and creates opportunities for double-counting reductions and diluting the emissions trading system itself.
- a price cap on emissions - the Liberals promised industry that they would sell unlimited permits at 15$/tonne if the price rose that high. This amounted to a fairly low-set safety valve and would have eliminated a lot of emissions reductions from the market. If Canada's market had ever been linked to international carbon markets, then it could have also led to arbitrage (traders buying Canadian permits as a hedge against market volatility, etc.)
One plus of the draft Conservative system: long term, gradually tightening targets - it sets out targets for not only 201-2015, but stricter targets for 2015-2020. This gives predictability to industry, particularly for capital investment decisions.
So what would the ideal Canadian emissions trading system look like? Here are some key points:
- an absolute target - forget the intensity targets and replace them with an overall, absolute cap on emissions, to guarantee real reductions.
- auctioned permits - auctioning permits is more economically efficient, a lot simpler to set up and administer, and removes most opportunities to hide favouritism towards particular industries. It also creates revenue that can be used to run the program AND create a double dividend (see my post) by using it to reduce income taxes or what have you.
- simplicity and clarity - a simple system makes for more liquid markets, more participant confidence, and more transparency. Using an absolute target and permit auctioning would get rid of a lot of the unnecessary complexity of the LFE system. Eliminating the offset system would also help, but this would also remove a big incentive for offset-type reductions - the compromise solution would be to design as simple an offset system as possible.
- no/higher caps on permit price - the 15$/tonne permit price cap was too low and will stifle innovation if its reinstated. Either remove the cap altogether, or announce a much higher cap - 80-125$/tonne (I use these figures since they've been cited as approximating the true costs of CO2e emissions)
- long term, gradually tightening targets
- roll-out as soon as possible - 2008 if possible.
Link to further Globe coverage
Link to a US EPA Guide to desigining and operating a cap and trade program - a great resource covering all of the topics discussed above.
Monday, February 19, 2007
Growing the economy with carbon taxes
Another freely available policy article from the journal Canadian Public Policy, this time from 1997. University of Guelph prof Ross McKitrick looked at the effects of different options for recycling the revenue from a carbon tax. The conclusion - if you recycle tax revenue the right way, you end up increasing overall welfare and GNP beyond the business-as-usual model, even without taking any benefits of climate change mitigation into account. I.E., we would be better off with a revenue-neutral carbon tax even if global climate change didn't exist.
So how do you recycle tax revenue "the right way"? By reducing the most distortionary of your existing taxes. As long as the tax being replaced/reduced is more distortionary to the market than a carbon tax, you will increase net economic growth and/or overall welfare simply by collecting government revenue in a more efficient way. As an added bonus, carbon taxes are already increasing net welfare by bringing an externality into the market, i.e. making polluters pay for the costs caused by their pollution.
Which is the best tax to reduce in Canada using carbon tax revenue? McKitrick modelled five recycling options: a lump-sum payment to all households; reducing the GST; reduced corporate income taxes; reduced personal income taxes; and reduced payroll taxes. All except payroll taxes reduced aggregate consumer welfare by 0.3%, and reduced GNP by 0.3 to 0.9%. Payroll reductions, on the other hand, had no effect on consumer welfare and boosted GNP by 0.6%. Note that none of this takes the benefits of reducing GHG emissions into account, so the effect on aggregate welfare is actually much less.
Link to the article
My comments: First of all, I recommend the article to anyone interested in the double dividend idea simply for the clear and concise overview of work on the concept. I had heard the idea many times before but the one thing I hadn't heard argued was that a carbon tax could be a good idea even without the climate change problem. I'd love to see a political campaign that actually conveys this idea to the public - its frustrating to read again how carbon taxes are a key and almost cost-free (or profitable) policy, and then see the idea so marginal in mainstream political debate.
A note on McKitrick - he's a global warming skeptic, has written a prize-winning critique of climate change science (Taken by Storm, 2002) and more recently coordinated the Fraser Institute's just-released Independent Summary for Policy Makers, an alternative summary of the fourth IPCC report. As the wikipedia article linked above indicates, his critiques have been also criticized (and no doubt counter criticized, etc...) Guess this side of things wasn't yet on his mind back in 1997?
So how do you recycle tax revenue "the right way"? By reducing the most distortionary of your existing taxes. As long as the tax being replaced/reduced is more distortionary to the market than a carbon tax, you will increase net economic growth and/or overall welfare simply by collecting government revenue in a more efficient way. As an added bonus, carbon taxes are already increasing net welfare by bringing an externality into the market, i.e. making polluters pay for the costs caused by their pollution.
Which is the best tax to reduce in Canada using carbon tax revenue? McKitrick modelled five recycling options: a lump-sum payment to all households; reducing the GST; reduced corporate income taxes; reduced personal income taxes; and reduced payroll taxes. All except payroll taxes reduced aggregate consumer welfare by 0.3%, and reduced GNP by 0.3 to 0.9%. Payroll reductions, on the other hand, had no effect on consumer welfare and boosted GNP by 0.6%. Note that none of this takes the benefits of reducing GHG emissions into account, so the effect on aggregate welfare is actually much less.
Link to the article
My comments: First of all, I recommend the article to anyone interested in the double dividend idea simply for the clear and concise overview of work on the concept. I had heard the idea many times before but the one thing I hadn't heard argued was that a carbon tax could be a good idea even without the climate change problem. I'd love to see a political campaign that actually conveys this idea to the public - its frustrating to read again how carbon taxes are a key and almost cost-free (or profitable) policy, and then see the idea so marginal in mainstream political debate.
A note on McKitrick - he's a global warming skeptic, has written a prize-winning critique of climate change science (Taken by Storm, 2002) and more recently coordinated the Fraser Institute's just-released Independent Summary for Policy Makers, an alternative summary of the fourth IPCC report. As the wikipedia article linked above indicates, his critiques have been also criticized (and no doubt counter criticized, etc...) Guess this side of things wasn't yet on his mind back in 1997?
Subscribe to:
Posts (Atom)
