Report: Amid U.S. Climate Policy Uncertainty, Canada Should Consider Cap-and-Trade

Uncertainty about U.S. climate policy direction means that Canada may need proceed with its own measures to mitigate climate change—including a carbon cap-and-trade system—a government-appointed advisory panel has recommended.

In a report titled “Parallel Paths: Canada-U.S. Climate Policy Choices,” the National Round Table on the Environment and the Economy (NRTEE) said that American climate policy colors and shapes Canada’s own policies, because its integrated economies require harmonization. But “different energy economies and greenhouse gas emission profiles in the two countries create different economic and environmental implications for Canada as we pursue a harmonized policy approach,” it said.

"We need to understand how we can meet our environmental responsibilities as a sovereign state and a global actor fully comprehending the unique economic ties we enjoy on this continent," stated Bob Page, NRTEE chair. "We are looking towards conformity in purpose, not uniformity in detail."

In the report released on Tuesday, the body said Canada should adopt a phased-in approach to climate harmonization with the U.S. to avoid a delay in greenhouse gas (GHG) emissions reductions and maintain economic competitiveness. This measured approach would establish a “price collar” that limits carbon price differentials between Canada and the U.S. and takes other national measures, the report says.

The report investigates new economic modeling and analysis assessing whether Canada should lead, lag, or harmonize policy approaches with the U.S. and the consequences of doing so. It shows that the current policy of harmonizing GHG reduction targets with the U.S. requires a higher carbon price in Canada to achieve those targets. Alternatively, harmonizing with the U.S. on carbon prices alone, rather than on targets, means Canada’s GHG target of cutting emissions to 17% below 2005 levels by 2020 would not be met.

“The carbon price collar would not exceed $30 more than the price in the U.S. so as to maintain economic competitiveness for energy-intensive, trade-exposed industrial sectors, yet still achieve significant emissions reductions,” the report says. “For the economy, this means average annual GDP growth (measured over 2005-2020), would be two-per-cent, one-tenth of a percentage point below what it would be without a policy.”

The report also highlights low-carbon technology investment to realize future emission reductions. It proposes creating a new Canadian Low-Carbon Technology Fund financed through the compliance investments of carbon-polluting firms, which could reach between C$500 million and C$2 billion in 2020 depending upon the Canadian carbon price and corresponding U.S. policy. “Recycling revenue back to industrial sectors, firms, and provinces would help ensure regional equity and fairness while targeting low-carbon technology development and deployment where it is needed most,” the report says.

Sources: POWERnews, NRTEE