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Home > Speeches and Presentations > Speeches and Presentations 2009 > Carbon Pricing: A Canadian Perspective

Carbon Pricing: A Canadian Perspective

Presented by
Gaétan Caron
Chair and Chief Executive Officer
National Energy Board

NARUC Winter Committee Meetings
International Relations Committee
Washington DC

16 February 2009

It is a pleasure to be here at this time in Washington, DC, and be invited to speak to the question of carbon pricing in Canada.

There is now a broad consensus that anthropogenic climate change related to growing greenhouse gases (GHG) emissions is a real issue requiring a concerted global policy response. A significant source of these emissions is considered to be energy use and production. Carbon pricing is being discussed as an appropriate economic instrument to lead to reductions in these emissions.

I am pleased to see the Canadian Association of Members of Public Utilities Tribunals (CAMPUT) and the National Association of Regulatory Utility Commissioners engaged in this discussion. Through this dialogue, there is a great opportunity to raise the understanding and awareness of the issue.

I have a brief presentation for you focusing on developments on this issue in Canada.

Canada's Targets

Canada is making progress taking action about climate change. This is happening at both the national and provincial levels.

National Targets Canada's national plan on climate change, "Turning the Corner" was released on April 26, 2007. Key features of this plan include the commitment to reduce Canada's greenhouse gas emissions by 20 percent below 2006 levels by the year 2020, and further reductions of 60 to 70 percent relative to 2006 by 2050.

There are also more immediate targets in terms of intensity reductions for large industrial emitters of 18% from 2006 levels by 2010, and further reductions of 2% per year thereafter. Several flexibility mechanisms are provided to ensure that Canadian companies have several options for pursuing the most economical and efficient reductions. These include use of offsets, emissions trading, credit for early action, credit trading and participation in technology fund and clean development mechanisms. The regulations are expected to come into effect on January 1, 2010.

Under this general policy direction, specific programs and policies are being currently developed. It is expected that a cap and trade form of carbon pricing will be an important consideration in meeting the national targets. Linkages to a North American system of cap and trade will also be important.

Provincial Targets Much like the US, progress is also being made at provincial levels.

Almost all provinces have a GHG reduction target. Atlantic provinces - 10% below 1990 by 2020; QC & MB - 6% below 1990 levels by 2012; ON - 15% below 1990 by 2020; SK - 32% below 2004 by 2020; AB - 50% below Business as Usual by 2050 , or 14% below 2005; BC - 33% below 2007 by 2020

Some provinces have also implemented carbon pricing. For example, Quebec in October 2007 implemented the first carbon tax in Canada. The tax set at roughly $35 per tonne of CO₂ equivalent is collected directly from the energy suppliers.

In July 2008 British Columbia introduced a tax of $10 to $30 per tonne of CO₂.

Our Partnerships

Canada is also actively exploring solutions at a broader level beyond national and provincial boundaries. Our partnerships into several North American initiatives are good examples.

Western Climate Initiative The Western Climate Initiative (WCI) was launched in February 2007. As you may know it is a collaboration of seven US governors and four Canadian premiers, created to identify, evaluate and implement collective and cooperative ways to reduce greenhouse gases in the region, focusing on market-based cap and trade system. Canadian partners include BC, Manitoba, Ontario, and Quebec. Saskatchewan is an observer to the process.

The purpose of WCI is to help achieve regional GHG emission reductions of 15% below 2005 levels by 2020. Phase 1 starts in 2012 and runs for 3 years.

Midwest Climate Initiative The Midwest Climate Initiative is the newest of the initiatives signed in November 2007 between nine US governors and the Premier of Manitoba. MCI intends to establish GHG reduction targets and timeframes consistent with member states targets. It plans to develop a market-based and multi-sector cap and trade mechanism to help achieve those reduction targets.

Regional Greenhouse Gas Initiative The Regional Greenhouse Gas Initiative (RGGI) is a cooperative effort by ten Northeast and Mid-Atlantic states targeting emissions from the power sector. Earlier on some Canadian provinces participated in this initiative, although recently the interest has shifted to the other two.

These three initiatives are important in advancing progress on the environmental front. Between these three regional agreements, 27 US states and 5 Canadian provinces are participating in these initiatives in some capacity (signatories or observers)

CAMPUT on Carbon Pricing

Canada's energy regulators and its energy utilities are increasingly engaged in discussion on carbon pricing. CAMPUT in cooperation with other energy industry associations has begun a three-part dialogue on carbon pricing to enhance the understanding of the issue and contribute to the efficient management of impacts across consumers, industry, governments, municipalities and others. A basic proposition in this dialogue is an understanding that any meaningful action on environment will require a transformational change to world energy end-use and production.

Ottawa - October 2008 The first session held in Ottawa in October last year focused on understanding the scope and scale of the challenge, nature of the options, and a review of carbon pricing systems across North America. The scale of the challenge is huge. Achieving the national targets imply an average decline in GHG emissions of about 1.6% from our current levels. To provide context, our emissions have grown by approximately 1% per year over the last decade. A Canada-wide coordinated plan integrated well with the rest of the world will be essential to address the challenge. Selected options will need to meet the test of environmental effectiveness, economic efficiency and social acceptability.

Calgary - January 2009 Focusing on various elements of carbon pricing, the second session in Calgary examined the effect on technology development and penetration, cost to the economy, and cost to consumers. With respect to any of these elements, the resounding message was that issues are complex, there is limited understanding of these issues even amongst the experts, and information is not readily available. Consumers, who will need to pay for the cost of compliance, have limited ability to act. They need simple choices and clear and consistent price signals to act rationally. An effective communication strategy is as important as the policy itself.

Toronto - April 2009 The dialogue will carry on in Toronto in a couple of months. This session will examine a "straw dog" on carbon pricing to understand implications across the economy. I expect the discussion to be informative and pragmatic.

I would like to extend an invitation to NARUC to participate in this continuing dialogue. The session is scheduled for April 7 and 8^th. I understand the Ottawa session was attended by Commissioner Richard Morgan of the DC Public Service Commission, and Miles Keogh of NARUC.

National Energy Board's Action

The NEB plays a notable role in informing Canadians and the decision makers on energy and related issues. Our 2007 release on Canada's Energy Future examines a scenario in which we attempted to strike a different balance between economic, environmental and energy objectives, relative to the status quo. This scenario is characterized by well-functioning energy markets, cooperative international agreements and the most rigorous energy demand management policies of the three scenarios examined. It also results in more supply and lower costs. In contrast, we ran a "fortified island" scenario based on countries pursuing their own energy solutions in isolation from the rest of the world - this scenario predictably produced the least amount of supply and the highest prices.

The elements of success in our triple E scenario include,

• Heightened awareness of energy issues amongst Canadians resulting in changes to the way we consume energy
• Reduction in nationalist policies and access to resources on a worldwide scale
• Worldwide cooperation in environmental and demand management policies resulting in moderate energy demand
• Development of technologies, both conventional and alternate fuels
• Continued support to deal with rising emission levels

These elements weaken the link between energy demand, and emissions and economic growth.

This scenario is instructive in indicating that a balancing of the three objectives, although complex, can be achieved, and transformation of current trends can happen. Broad cooperation outside our national borders will be fundamental to success in addressing this global issue.

The Way Forward

All signs indicate the need for significant transformational change in both consumption and production of energy

Good news, other news story The good news is that we know what our goals are (20% by 2020 as a start); we are beginning to take action. We have moved beyond the debate on whether climate change is happening and the scientific evidence for it. We have set environmental targets to guide us in our action about climate change. The other news is that the journey is complex and challenging and there are a lot of unknowns. We need to determine the path to get there. We have choices to make.

Now we must nail down the means We do not know what the cost of carbon should be, and what specific technology will capture it. Therefore, we do not need to, nor can we, get it right, at least not the first time. Modeling the cost of carbon policy is harder than forecasting the price of oil - we should not be surprised by that. We are trying to internalize an externality, by creating an efficient market, which is just beginning to emerge, somewhat inefficiently

Carbon tax or cap and trade These mean different things to different people. We must be specific and define the terms.

"Integrated" Solutions Integration will lead to effective solutions. Carbon and energy must be looked at as an entire, inter-dependent system. Business processes identifying solutions must be defined, documented, and implemented. We need to integrate externalities in our decisions; we need to integrate consideration of energy security and economic costs into the achievement of carbon goals; we need to integrate across jurisdictions and nations in establishing market-based solutions; we need to integrate government policy with consumer action and behavioural change; we need to integrate in our decision-making considerations of economic disruptions and implications for industry competitiveness.

Leadership Opportunities Therefore, all of this means we need at the outset to act on leadership. Analysis alone will not tell us what to do.

Role for CAMPUT, NARUC and their members Regulatory agencies will have an important role to play in explaining the intricacies of carbon pricing, whatever is chosen. This will help consumers make informed choices. CAMPUT is considering playing a role. NARUC is also well positioned to do that.

US developments will affect Canadian choices Canada will make its own carbon choices. However, given the integration between our nations, US developments will affect Canadian actions. We cannot be so different as to impact our own competitiveness. In keeping with the NEB's and FERC's best practice of "conscious parallelism", and an ongoing dialogue, our two nations can be partners in the journey towards a world where carbon is efficiently priced towards a sustainable future.

 

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Date Modified:

2011-10-28