CO2 Tax Proposed As Long Term Solution For Greenhouse Gas Reductions

By Elsie Ross
Nickle's Daily Oil Bulletin
19 April 2007

A properly designed, broadly-applied carbon dioxide tax would be the most effective way in the long run to tackle the global issue of greenhouse gases, an industry spokesman said Wednesday.

"We need something that will allow decentralized decision making across the world -- across the economy within Canada, across other economies in the industrialized world and even across the economies in the developing world," Rick Hyndman, senior climate advisor for the Canadian Association of Petroleum Producers, told a CIBC World Markets energy conference in Toronto.

A carbon tax with an escalating rate that is harmonized across all major emitting countries would be the best policy to effect the change to lower emissions, he said. To avoid transfers of wealth, each country would levy the tax. Within Canada, the provinces would levy the tax which would apply to emissions from electricity generation, heating fuels and the resources industries that vary widely from province to province.

The idea would be to start at an acceptable level of about $15 per tonne while serving notice to society and industry that the price will escalate to as much as $50 per tonne or more over the next 15 or 20 years, eventually getting to a price that on its own will drive the transformation of the energy system, said Hyndman.

However, it is too early to adopt that approach, he told the conference. One reason is the uneven effort in reducing greenhouse gases internationally.

"We have to be very careful about how we would implement a carbon pricing or carbon tax in particular to avoid undermining the competitiveness of Canadian industry."

There also is a lack of policy understanding among politicians, bureaucrats, industry and the public, said Hyndman. "The word tax has a stigma which has caused governments to say they are not going to introduce new taxes so it is very difficult to have a rational discussion about how you would implement this in a way so that it would work effectively and not cause redistribution of wealth effects," he said.

In addition, there is a lot of confusion about emissions trading which Hyndman described as a "privatized carbon tax." Those who are selling permits under an emissions trading system and stand to benefit are keen to get this system in place, he said. "The others who will be on the paying side haven't really woken up to the fact that this is really going to in the end discriminate against them much more than a carbon tax would which had everybody paying in proportion to their emissions."

After 10 years of arguing over climate change policy, the Canadian government simply needs to "take the step and get going and signal where Canada is going, provided the rest of the world is coming along," he said.

The federal Conservative government is expected to release its long-awaited climate change plan regulations April 26. The government has already said it cannot meet Kyoto Protocol targets that called for emissions six per cent below 1990 levels by 2012. Last October, it unveiled the Clean Air Act Bill C-30 that proposed to cut greenhouse gas emissions by between 45% and 60% of 2003 levels by 2050. The bill, denounced by opposition parties as too weak, was then sent to a parliamentary committee which added new provisions for greenhouse gases, air pollutants, vehicle regulations and energy efficiency.

The executive directors of 10 of Canada's largest environmental organizations have urged Prime Minister Stephen Harper to ensure the new regulations either match or exceed the standard set by the rewritten Bill C-30 (The Clean Air and Climate Change Act).

According to Reuters, a government document leaked to environmental activists indicated the government was proposing to cut emissions by 45% to 60% of 2006 levels by 2050. Emissions rose steadily between 2003 and 2006.

Environment Minister John Baird earlier indicated emission reduction targets for large emitters such as oilsands operators would be intensity based. The leaked document also suggested the government will rely heavily on carbon sequestration to reduce emissions, according to a Canadian Press report.

The Alberta government is proposing legislation based on intensity improvement targets with a 12% reduction from the 2003-2005 base period. "They offer a clear price signal for the industry sector and they are also designed with a cost burden that would not undermine competitiveness in this initial step," said Hyndman.

With the improvement target higher than the expected actual emissions, companies initially would make up the difference with a payment of $15 per tonne into a technology fund in each sector to help advance technologies so that emissions will be lower in the future.

At another conference this week, participants heard from an environmental activist as to what they should expect from the federal Tories in terms of the upcoming climate change legislation. For starters, it likely will be tougher than Alberta's legislation, Marlo Raynolds, executive director of the Pembina Institute, told a Canadian Institute midstream conference. "It just would not be acceptable nationally to have a made-in-Alberta target as weak as it is now."

Industry also should plan for an absolute cap on emissions, he said. "I think there is a strong enough case to be made for that." Intensity limits provide no guarantee of reduction whereas all the environment cares about is absolute reductions, said Raynolds. "It doesn't care if a company does slightly better per cubic metre of product."

The intensity approach also makes it extremely difficult to compare across jurisdictions and raises questions about transparency, the conference was told.

Companies should start preparing for a 20% reduction from 1990 levels in emissions by 2020, he said.

Raynolds predicted that initially the price of CO2 will be set in the range of $20 to $30 per tonne before shifting to market prices. In Alberta, that would add $1 to $2 per bbl to oilsands production and two to three cents per kilowatt hour in the price of electricity to meet Kyoto obligations.

There also likely will be some form of domestic trading among large scale emitters. "It took a year and a lot of lobbying to get this government to the point where there is value in a trading system," he said.

In some ways, a carbon tax might offer advantages in terms of simplicity such as in rewarding early action on emissions and in dealing with uncertainty, Raynolds suggested. "It's pretty quick and simple; you know what you're planning against," he said.

The Pembina Institute executive also noted that while Canada likes to consider itself an "energy superpower" it is one of the few OECD countries in the world that has no strategy or vision on energy. An energy policy has to be tied to a climate change strategy because they are so interconnected, said Raynolds.

He wrapped by recommending that companies begin to mobilize their engineers to engage them in the issue of greenhouse gas reductions. "The time for lobbyists and lawyers is quickly passing," said Raynolds.

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