The Liberal and Conservative election platforms contain promises to reduce Canada’s greenhouse gas emissions using policies that will threaten Canada’s economic prospects, says the Fraser Institute.
April 28, 2011
by JOEL WOOD, FRASER INSTITUTE
With health care and the economy top of mind among voters during the election campaign, it’s surprising that both the Liberal and Conservative platforms contain promises to reduce Canada’s greenhouse gas emissions using policies that will threaten Canada’s economic prospects.
The Conservatives propose reducing emissions by 17% of 2005 levels by 2020, while the Liberals propose reducing emissions by 80% of 1990 levels by 2050. Of the two, the Conservative target is more ambitious, since it requires larger annual average reductions of emissions. To provide context, the Conservative target requires reductions similar to the emissions reductions achieved by ceasing all road transportation in Canada. Not even stopping all oil and gas extraction and processing would achieve this target. And both plans would have only negligible impact on global greenhouse gas emissions. After all, Canada currently accounts for about 2% of global emissions.
While the parties are clear on their targets, they’re being rather quiet about how they’ll be achieved.
Start with the Liberal election platform, which proposes a countrywide cap-and-trade system. This plan would see a set number of emission permits distributed to large emitters. If a company finds ways to reduce emissions relatively cheaply, it can then sell its permits to other companies and a market price for emissions develops. Those that cannot cheaply limit emissions will need to buy permits. In addition, when a company expands its operations, it must either buy more permits or invest in cleaner production technologies.
To pay for permits and/or technology upgrades, companies will reduce costs elsewhere in the production process by cutting jobs and/or passing along the cost of the permits in their prices. Ultimately, this will increase the price of CO2-intensive goods and services such as oil, gas, and many industrial products. Analysis conducted by the US. government suggests that the US cap-and-trade legislation that failed to pass in 2010 would have resulted in reduced production of goods and services, increased unemployment and increased consumer prices. None are good options for Canadians.
The higher prices of goods produced in Canada due to cap-and-trade will encourage consumers and businesses to increasingly use imports from countries, such as China and India, without greenhouse gas policies. For example, since the imposition of a carbon tax in British Columbia, businesses have substituted cement imports from the US and China for domestic cement. The policy will also negatively affect the competitiveness of Canadian export industries.
The Liberal cap-and-trade proposal specifies that permits will be auctioned rather than distributed freely. But it fails to mention what will be done with the revenue it receives from the auctioning of emission permits. This detail is crucial for assessing the economic damage of the policy. If revenues are used to reduce other distorting taxes such as personal and corporate income taxes, then the economic damage will be somewhat offset.
Meanwhile, the Conservative’s platform is completely silent on the details of how their target will be achieved. However, the Conservatives March budget proposal and previous comments by the prime minister and Peter Kent, incumbent environment minister, indicate they will follow the United States and take a regulatory approach to controlling emissions.
A regulatory approach relies on bureaucrats to investigate facilities and mandate how much emissions each facility is allowed to release. Just like cap-and-trade, the regulatory approach forces companies to invest in technologies and production methods that they otherwise would not have done.
Canadians will naturally wonder which of the two proposals is the least damaging. But without further details, it is difficult to say.
However, it’s painfully clear both policy approaches will have significant negative effects on the Canadian economy including job losses, increased consumer prices, uncompetitive exports and generally less economic activity.
It’s also clear that due to Canada’s extremely small contribution to global emissions, the planned reductions of both parties will have little to no effect at the global level. Thus, even if climate change is occurring, is man-made, and is caused by greenhouse gases, the policies will provide only negligible, if any, environmental benefit to future generations.
Joel Wood is a senior research economist with the Fraser Institute’s Centre for Environmental Studies. The Fraser Institute is an independent, non-partisan research and educational organization with offices across Canada.