Climate Change Coming to a province near you. Pan-Canadian Redux

air-carbon-chimney-39553

Ah, you don’t believe

we’re on the eve

of destruction

Barry McGuire

 

For climate change, now might be the time to believe in case you have any doubts. NASA recently recorded CO2 to be at 408 parts per million. The previous high came in at 300 ppm over 300,000 years ago. We have to look back 3 million years to see carbon levels comparable to today. But then, temperatures were about 2 degrees higher than pre-industrial time and sea levels were about 15-25 metres higher than today. If the climate acted like the stock market, then 300,000 years ago compares to 1929 stock market levels before the crash and the present compares to dot-com market valuation levels. The point being that the repercussions of those lofty levels lingered for years afterwards. Climate wise, we can anticipate several centuries before things start to normalize again.

 

We will likely zoom right past those ancient levels. If you have doubts, then the UN has some good peer reviewed studies indicating that things may be a bit worse than they seem. http://www.ipcc.ch/

 

 

I mentioned the increasing carbon levels to give a sense of scale of what appears to be occurring. Personkind always tends to push problems off into the future in order to avoid the present cost. This became the constant theme since the early eighties when countries could not reach a conclusion on how to deal with the increasing carbon in the atmosphere. Back then, there seemed to be a great deal of confidence that we would be able to innovate to create cost effective solutions to the problem in the distant future. Moreover, that distant future is suddenly here. A cost effective solution may have been true had we been working on the problem a bit more, but subsidies for new less carbon intensive technologies have waxed and waned. We pushed back even further the practical application of the innovations we should have started back in the 90s.

 

The climate change issue came onto the science scene several decades ago. The world finally managed to agree on the United Nations Framework Convention on Climate Change back in 1992 after many attempts of trying to do something. This framework provided for the implementation through the Kyoto Protocol. Canada finally dropped out of the protocol seeing that we would not meet our stated obligations mainly due to dithering by the governments at the time. In any event, without China or the USA signing on, the protocol would not finally solve the problem of rising carbon emissions.

 

With the 2015 Paris Agreement, most of world again agreed on the need to do something. Albeit on a non-binding basis. Here the Canadian government agreed to decrease emissions 30% below 2005 levels by 2030. Canada stepped up with the pan-Canadian Framework and later the Greenhouse Gas Pollution Pricing Act. The framework uses carbon pricing, complimentary climate actions, adaptation and innovation to address the problem

 

Economists generally agree that adding a price to carbon can be the most effective and efficient way to reduce emissions as opposed to command and control regulation. This price signal assists in the modification of behaviours as businesses and individuals slide towards less carbon intensive behaviours. Some economists now wonder if carbon pricing may not be the panacea everyone hoped. So far, the end objective of stopping the increase in carbon emissions has not yet occurred as hoped.

 

The federal GHG Act provides a backstop approach in that the Act only applies if a province did not pass a similar piece of legislation that would allow the federal government to reach its objectives under the Paris Agreement. To avoid the federal backstop, any provincial system should then obtain the same level of reductions as would have been achieved under the federal system.

 

The GHG Act charges regulated emitters for excess carbon emissions at a rate of $20 per tonne in 2019 and this rate increases annually to $50 per tonne.

 

Ontario used to have about the best carbon pricing policy in Canada. Their cap and trade program integrated nicely with the Western Climate Initiative with California and Quebec.

 

Doug Ford promised to rid Ontario of this tax, which it never really had in the first place, but semantics aside, he intends to contest the federal government’s jurisdiction in applying a carbon tax. Again, the GHG Act uses ‘charge’, but even more semantics. Residents in Ontario shall live in interesting times for the next few years. Ontario joined Saskatchewan’s challenge to the carbon tax, and Ontario commenced its own challenge. Most legal scholars feel the challenge will not succeed and the other provinces declined to join in. However, since politicians do keep their promises, Ford will bring all available resources to this event, which may proceed at a receding glacial pace.

 

In the meantime, the Ontario government took a number of steps to dismantle the existing system starting with stating that emission allowances can no longer be traded. Although businesses purchased $2.8 billion in credits, Ontario does not anticipate reimbursing businesses anywhere near that amount. After all, businesses operated during this time. Any funds allocated to purchase unused emission reduction credits might add to incremental greenhouse gases (go up in smoke, so to speak). They have also canceled any future rebates on their clean technology programs and other innovation technology. They recently passed legislation allowing them to cap compensation for the cancellation of the White Pines windfarm program.

 

As of January 2019, the federal GHG Act will start to apply to apply to all provinces that do not have comparable legislation in order to reduce their emissions within the province. Ford opened the door to the carbon charge himself instead of the homegrown policy. This does allow him the luxury of pointing to how the federal government is now imposing this carbon charge and it is out of the hands of the province. The province can take all the benefits and none of the blame as the federal government then returns the carbon charge funds back to the various provinces. If Ontario simply returns the funds back to those incurring the cost, then the entire carbon-pricing concept can get lost.

 

Ontario will now face a higher carbon charge of $20 per tonne increasing to $50 tonne rather than the $18 tonne in 2016 dollars as suggested by Ontario’s policy analysts. The Ontario government would appear to be bringing in more revenue with less effort on their side. At least they fought the good fight and can sit back and allow the revenues to pour in. The federal government’s $420 million transfer to Ontario under the Low Carbon Economy Leadership fund may in jeopardy since the feds do not appreciate where Ontario is leading.

 

 

Carbon pricing maybe too little too late as climate change incidents start to accelerate. Ontario just recently announced that it will introduce a regulatory plan for reducing greenhouse gases in the province, but they will not commit to hitting the federal government’s targets. This lack of commitment allows the federal charge to start January 1st. Perhaps Ontario’s $1 beer will alleviate the heat and take everyone’s minds off their ever-increasing climate related problems.

 

Pixabay

+Source: pixabay.com

 

Pixabay

+Source: pixabay.com

The Pan-Canadian Framework on Clean Growth and Climate Change-The Ontario Controversy

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The federal government created an eloquent solution to the problem of carbon emissions and climate change. Their backstop GHG Act allows the provinces to create a number of homegrown solutions in order to deal with emissions within their own jurisdictions.

Ontario created perhaps the best and most integrated solution to the problem of emissions. The Ontario Climate Change Mitigation and Low-Carbon Economy Act, 2016 (the Ontario Act) established a standard cap and trade system described in the earlier article. In addition, the system integrates with the Western Climate Initiative (WCI) which provides access to an even greater market to buy and sell the most cost effective carbon credits.

The Ontario system compared a number of policy alternatives in its Five Year Climate Change Action Plan. The most cost effective alternative used the existing cap and trade system integrated with WCI. The policy concluded that the existing system would result by the year 2020 in a carbon charge of $18 in 2016 dollars.

We previously described how the federal government uses a solid constitutional ground to establish a national carbon charge. Ontario intends to argue against this ground with all available resources. This would provide great relief to Saskatchewan in its intent to also contest the GHG Act. The other provinces may follow suit, but from a risk management perspective Ontario and Saskatchewan businesses would be prudent to prepare for the federal carbon tax of $20 tonne in 2019 and establish the necessary processes and infrastructure now.

The Ontario government appears to be in the enviable position of avoiding the political cost of pricing carbon and can throw the entire responsibility on the federal government. Instead of businesses and consumers facing a potential Ontario based $18 cost per tonne of carbon by 2020, they will have the federal government’s $50 tonne instead. Interestingly, the Ontario government would be receiving greater revenues under the federal system.

The federal system would also be revenue neutral, but the Ontario government would not be as constrained in the use of the revenues. They still might model the innovations and adaptations outlined in the Ontario Climate Change Action Plan, but there is no indication that they plan to do so. Indeed, the funds could go directly back to the entities paying the tax. The carbon pricing signal would be lost, and Ontario would have lost a tremendous opportunity to invest in other innovations to shift into the low carbon economy.

However, Ontario regulated entities purchased $2.8 billion worth of credits already. Ford appears to be pleased that companies would not have to incur these costs in the future. The costs under the carbon tax would be even greater. The federal government would likely not be in a position to reimburse Ontario businesses the cost they have for purchasing credits that may extend as far as 2021. These revenues would have likely gone to the Ontario government and a portion to the WCI. The revenues generated in Ontario would have flowed mainly towards funding the various emissions reductions programs.

WCI does not provide information as to whether Ontario was a net purchaser or seller of carbon credits. An estimate by Ontario’s auditor general Bonnie Lysyk estimated that in 2016 that Ontario businesses would have to pay $466 million for WCI facilitated allowances.

Under section 33 of the Ontario Act, the Minister may retire emission allowances from circulation or may cancel Ontario emission allowances in accordance with the regulations in such circumstances as may be prescribed.  A less confrontation approach would simply be to conclude the Ontario Cap and Trade program naturally. Businesses would likely have no further need for these emission allowances since the province would no longer need to cap the level of emissions coming from the regulated industries.

Effective July 3rd, 2018 the provincial government revoked the cap and trade regulation, prohibiting all trading of emission allowances. Their Carbon website does not provide any further helpful information. The GreenON rebate program will be wound down, but the program will honor arrangement where contracts were signed before June 19th, 2018 for work to be completed by October 31st, 2018.

Ontario contemplates formation of a fund to invest in emission reduction technologies. With the dismantling of the Ontario Cap and Trade, The federal government intends to review the $420 million transfer to Ontario under the Low Carbon Economy Leadership fund.

Since the federal carbon charge is a separate type of system, we would anticipate business having to pay and collect this amount commencing January 1st, 2019. We would also anticipate the carbon tax running concurrently with the no longer required but already purchased carbon credits by Ontario regulated entities.

#pan-canadian

#emissions

photos

Tookapic

+Source: stock.tookapic.com 

 

The pan-Canadian framework: Setting a price on carbon

air-air-pollution-climate-change-221012This is the second in a series of articles dealing with carbon tax and trading. The first article dealt with the history surrounding the UN treaty on climate change and the various attempts to implement the treaty which eventually culminated in the Paris Agreement. The pan-Canadian framework became Canada’s answer to reduce its overall greenhouse gas (GHG) emissions.

Carbon pricing forms the central component behind any market attempt to reduce GHG emissions other than using strict command and control regulations. Pricing sends a signal to the marketplace that products or operations relying on extensive carbon use can be less economically efficient than other products or operations that use less carbon.

The ability to emit any form of pollution into the environment without restrictions allows polluting entities to externalize those costs. This means that these entities do not have to incur the cost of cleanup while some other neighbour next door, or city or country incurs the eventual cost of that pollution. Sending a price signal essentially adds the cost of the pollution right into the cost of the product or operation itself. Anyone using that product or operation can now compare the cost with another product or operation that does not have such a carbon extensive expense attached to it. The market eventually switches to the low-carbon alternative.

This problem of externalizing costs can be seen in other areas. The globalization of the economy demonstrates this. Lower tariffs allow products that are produced more cheaply elsewhere into the country. The entire economy essentially benefits except for those that used to make the same item but at a higher cost. One group incurs the benefits while a different group incurs the cost such as job loss.

A more concrete example would the Alliance of Small Island States (AOSIS). This 44-member intergovernmental organization comprises low-lying coastal and small island countries formed to address global warming. The existence of many of these states are at risk owing to global warming and rising sea level. The group continues to threaten litigation with climate change related losses at potentially over $570 trillion.

The federal government places carbon pricing as the primary pillar to its pan-Canadian framework. The question then becomes can it legally achieve this goal.

The framework uses two basic mechanisms for this pricing under Bill C-74 which includes the Greenhouse Gas Pollution Pricing Act (GHG Act) and recently passed by the Senate. The first mechanism uses carbon taxation. The Act actually uses the term “charge” instead of tax, but tax seems to capture the concept fairly well also. The charge begins at $20 per CO2 equivalent for 2019 and increases at $10 per year until it reaches $50 in the year 2022.

The federal government’s jurisdiction over the environment can conflict with the provinces’ jurisdiction quite easily. The federal government’s jurisdiction over tax pursuant to s. 91(3) of the Constitution Act however appears quite clear. This section allows the federal government to raise money by any mode or system of taxation. However, the intent behind the GHG Act would be for it to be revenue neutral. The revenues raised would be returned to the provinces to facilitate climate adaptation and innovation in low carbon technology. The GHG Act does appear clear in that it raises revenue. The Constitution Act does not place a condition on raising money through taxes depending upon how the revenues can be spent.

The federal government can pass legislation in order to implement a treaty, but this does not override the provinces’ jurisdiction. The government also has authority under peace, order and good government. Carbon being emitted in one jurisdiction can have negative effects in another jurisdiction, but this would not seem to justify dealing with carbon on a national basis under this type of power.

A number of provinces intend to challenge the federal jurisdiction to place a charge on carbon emissions. Scholars have opined on this situation and came to the conclusion that the feds would likely succeed in any court challenge. Although this delays the inevitable, court challenges also allow a bad situation to continue. In addition, jurisdictions not modifying their economy to align themselves with a lower carbon future, shall soon become less competitive and be left behind by the global economy.

In the next article, we shall be examining how the second mechanism of carbon pricing, carbon trading, integrates with the tax proposal. Read the previous article here.

Gary Goodwin is the chief legal officer for a national conservation organization. He has been working in the environmental field for over 30 years.

Lawyers Daily July 6, 2018

 

Source: pixabay.com