tag:theconversation.com,2011:/us/topics/cap-and-trade-63975/articlescap-and-trade – The Conversation2020-02-20T20:56:54Ztag:theconversation.com,2011:article/1309242020-02-20T20:56:54Z2020-02-20T20:56:54ZCarbon pricing may be overrated, if history is any indication<figure><img src="https://images.theconversation.com/files/316497/original/file-20200220-92493-1p05ejx.jpg?ixlib=rb-1.1.0&rect=406%2C133%2C4523%2C3067&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Groningen gas field in the Netherlands was discovered in 1959, and is the largest natural gas field in Europe.</span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Wildervank_natural_gas_field.jpg">(Skitterphoto/Wikimedia)</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>A common demand in discussions about climate change is to respect the science. This is appropriate. We should all be paying close attention to the <a href="http://www.bristol.ac.uk/cabot/events/2012/194.html">urgent and terrifying conclusions</a> being published by climate scientists. </p>
<p>But scientists are not the only experts demanding that we listen to them on this issue. Many economists claim scientific authority for their insistence that carbon pricing, whether delivered through carbon taxes or cap-and-trade systems, is the best way to reduce carbon emissions. </p>
<p>If you price carbon appropriately, they say, it will create market incentives which will bring about radical carbon emissions reductions in the <a href="http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2014/02/PB_case-carbon-pricing_Bowen.pdf">cheapest possible way</a>. Many policymakers have already listened to this advice. Carbon-pricing systems exist in Canada, the European Union, Norway, New Zealand and Japan. </p>
<p>The case for carbon pricing, however, is not as ironclad as the case for climate action. The economic theory that underlies carbon pricing schemes is based on <a href="https://theconversation.com/danger-strikes-when-foolish-humans-are-left-in-charge-of-their-financial-futures-45262">questionable theoretical assumptions</a>. It assumes, for example, that people can be modelled as both rational and self-interested, which might be a big oversimplification. </p>
<p>Carbon pricing proponents often ignore that <a href="https://www.nrdc.org/experts/david-b-goldstein/carbon-fees-are-not-best-solution-climate-pollution">many people can’t</a> reduce their carbon emissions, even if they receive financial incentives. Economists who favour carbon pricing also have yet to come up with an answer to the <a href="https://www.citylab.com/transportation/2018/11/french-protests-gilets-jaunes-emmanuel-macron-gas-diesel-tax/576196/">major political backlashes</a> that have <a href="https://www.theguardian.com/environment/2014/jul/17/australia-kills-off-carbon-tax">accompanied the imposition of carbon taxes</a> in many of the jurisdictions <a href="https://www.macleans.ca/politics/ottawa/a-carbon-tax-just-try-them/">where they have been introduced</a>, including France, Australia and Canada.</p>
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Read more:
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<p>A less frequently discussed reason to question the insistence on carbon pricing as a central climate policy comes from history. Throughout the 20th century, many governments successfully enacted <a href="https://doi.org/10.1016/j.erss.2015.12.020">radical technological transitions</a>. Today, faced with an urgent need to change our energy system, it would be wise to look at how they accomplished this. My research on how governments in the past have deliberately accelerated large-scale technological change does just that.</p>
<h2>Modernizing under siege</h2>
<p>In 1937, British policymakers looked on nervously while the Wehrmacht marched into Austria. War with Germany posed a serious food supply problem for Britain. British agriculture had been <a href="https://doi.org/10.1093/acprof:oso/9780198208716.001.0001">collapsing for decades</a> under competition from cheap foreign foods, and Germany was known to use submarines to disrupt enemy shipping. Policymakers began preparing for a siege economy. </p>
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<img alt="" src="https://images.theconversation.com/files/316501/original/file-20200220-92518-307u89.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/316501/original/file-20200220-92518-307u89.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=484&fit=crop&dpr=1 600w, https://images.theconversation.com/files/316501/original/file-20200220-92518-307u89.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=484&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/316501/original/file-20200220-92518-307u89.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=484&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/316501/original/file-20200220-92518-307u89.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=608&fit=crop&dpr=1 754w, https://images.theconversation.com/files/316501/original/file-20200220-92518-307u89.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=608&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/316501/original/file-20200220-92518-307u89.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=608&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The Women’s Land Army ploughed fields in Britain on tractors during the Second World War.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:The_Women%27s_Land_Army_in_Britain_during_the_Second_World_War_HU36275.jpg">Imperial War Museum</a></span>
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<p>To do this, the British government <a href="https://www.goodreads.com/book/show/3714461-english-agriculture">intervened directly in the agricultural system</a>. It purchased thousands of tractors, established a subsidized fixed price for grain to stabilize markets, created local War Agricultural Executive Committees to maximize food production and, in many cases, had police force farmers to plough new land. </p>
<p>These policies not only allowed Britain to avoid famine during the Second World War, they also jump-started a massive structural transformation that persisted into the 1950s and 1960s as British farmers <a href="https://www.jstor.org/stable/40275421">embraced tractors, fertilizers, pesticides and monocultures</a>.</p>
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<img alt="" src="https://images.theconversation.com/files/315772/original/file-20200217-11017-1hu0nw6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/315772/original/file-20200217-11017-1hu0nw6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/315772/original/file-20200217-11017-1hu0nw6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/315772/original/file-20200217-11017-1hu0nw6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/315772/original/file-20200217-11017-1hu0nw6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=511&fit=crop&dpr=1 754w, https://images.theconversation.com/files/315772/original/file-20200217-11017-1hu0nw6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=511&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/315772/original/file-20200217-11017-1hu0nw6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=511&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Changes to British grain yields, 1900-70.</span>
<span class="attribution"><a class="source" href="https://books.google.ca/books/about/British_Historical_Statistics.html?id=Oyg9AAAAIAAJ&redir_esc=y">(Data from 'British Historical Statistics')</a></span>
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<h2>Making the most of a bonanza</h2>
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<span class="caption">Heat consumption in The Netherlands, 1945-98.</span>
<span class="attribution"><a class="source" href="https://opendata.cbs.nl/statline/#/CBS/en/dataset/83140eng/table?ts=1582135182081">(Data from Statistics Netherlands)</a></span>
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<span class="caption">Energy production in The Netherlands, 1945-73.</span>
<span class="attribution"><a class="source" href="https://opendata.cbs.nl/statline/#/CBS/en/dataset/83140eng/table?ts=1582135182081">(Data from Statistics Netherlands)</a></span>
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<p>In 1959, the Dutch oil industry discovered the Slochteren natural gas field near Groningen, in the Netherlands. At the time, its size was estimated at 60 billion cubic metres of gas: the largest gas field found on Earth up to that point. It proved to be much larger: <a href="https://www.nam.nl/english-information.html">2,800 billion cubic metres</a>.</p>
<p>It was not entirely clear what the Netherlands, a predominantly coal-powered country, would do with so much gas. Deliberations between the fossil fuel industry and the government eventually arrived at a radical answer: the Netherlands <a href="https://doi.org/10.4337/9781845423421.00017">would transform its entire economy to run on natural gas</a>. </p>
<p>Once the details of this plan were agreed upon, progress proceeded with astonishing speed. The Dutch government built a nationwide network of gas pipelines in just five years, offered consumer rebates to convert appliances to gas power, ran an advertising campaign promoting natural gas as a clean and modern fuel and <a href="https://doi.org/10.1080/09537325.2019.1584286">retrained out-of-work coal miners to work in the gas industry</a>. By the 1970s, natural gas was the dominant force in the Dutch heat supply.</p>
<h2>Lessons from an energy crunch</h2>
<p>In 1973, Denmark had no domestic oil industry and little diplomatic heft. This meant that the <a href="https://www.theguardian.com/environment/2011/mar/03/1970s-oil-price-shock">1973 oil crisis</a> hit Denmark hard. Reduced oil supply created an economic depression and forced policymakers to implement <a href="https://doi.org/10.4324/9781315739533-3">extreme energy conservation measures</a>, such as turning out streetlights and banning Sunday driving.</p>
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<span class="caption">Danish heat supply, 1968-90.</span>
<span class="attribution"><a class="source" href="https://statbank.dk/statbank5a/default.asp?w=1368">(Data from Statbank Denmark)</a></span>
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<p>For a longer-term solution, Danish policymakers looked to become less dependent on imported energy. To reduce the country’s reliance on heating oil, they prioritized district heating: An extremely efficient form of space heating which uses insulated pipes full of hot water to heat several buildings, or even an entire neighbourhood, at once, rather than having each building rely on an individual furnace.</p>
<p>As with the previous two examples, this change was done through <a href="https://doi.org/10.1080/09537325.2019.1584286">deliberate intervention</a>, which was handled mainly by municipalities. In some places, municipalities banned the installation private furnaces. In others, they offered interest-free loans to energy cooperatives. This coordinated national strategy led to a rapid increase in the share of district heating in the Danish heating system.</p>
<h2>Lessons for today</h2>
<p>These case studies have important differences, both with each other and with the challenge of climate action in the present day. In each one, however, radical technological change was achieved not by relying on price signals to coordinate change, but by the state intervening and coordinating it directly. </p>
<p>This is strong historical evidence against some economists’ insistence on carbon pricing as the primary way to promote low-carbon technologies and practices. As they chart a way to mitigate climate change most effectively, policymakers should supplement economic theory with empirical lessons from history.</p><img src="https://counter.theconversation.com/content/130924/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Cameron Roberts receives funding from the Transition Accelerator, and is a member of Courage Coalition. </span></em></p>The case for carbon pricing is not as ironclad as the case for climate action.Cameron Roberts, Researcher in Sustainable Transportation, Carleton UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1108422019-02-21T22:19:59Z2019-02-21T22:19:59ZWhy the carbon tax will cost some Maritimes families more than others<figure><img src="https://images.theconversation.com/files/259816/original/file-20190219-43281-lbvky1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">In some provinces, families that heat with wood will pay no carbon tax but still get a refund.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>This year, Canadian households will be <a href="https://www.theglobeandmail.com/canada/article-canadas-carbon-tax-a-guide/">paying for their greenhouse gas (GHG) emissions</a>. How much each household pays will depend not only on the amount of energy they consume, but also on where they live. </p>
<p>The different carbon pricing systems used across the country have led to inconsistent pricing that can be unfair to some low- and middle-income households. </p>
<p>The root of this problem is the <a href="https://www.canada.ca/content/dam/themes/environment/documents/weather1/20170125-en.pdf">Pan-Canadian Framework on Clean Growth and Climate Change</a>, which requires all Canadians to pay for their emissions. In order to gain widespread provincial and territorial acceptability, it avoids defining a single, national carbon pricing system. </p>
<p>Instead, the Framework gives provinces and territories flexibility in their choice of carbon pricing systems, as long as it meets <a href="https://www.canada.ca/en/services/environment/weather/climatechange/pan-canadian-framework/guidance-carbon-pollution-pricing-benchmark.html">a common standard</a>: a carbon tax (like British Columbia’s), a cap-and-trade system (like Quebec’s) or a hybrid system (like Alberta’s). Those that do not implement an approved carbon pricing system must adopt <a href="https://www.canada.ca/en/services/environment/weather/climatechange/pan-canadian-framework/guidance-carbon-pollution-pricing-benchmark.html">the federal “backstop” program, Output-Based Pricing System (OBPS), and a carbon levy</a>.</p>
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Read more:
<a href="https://theconversation.com/taxpayers-will-back-a-carbon-tax-if-they-get-a-cheque-in-the-mail-99825">Taxpayers will back a carbon tax if they get a cheque in the mail</a>
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<p>The result is a <a href="https://www.canada.ca/en/environment-climate-change/services/climate-change/pricing-pollution-how-it-will-work.html">patchwork of provincial or territorial systems</a>, with the carbon price on energy products paid by households varying from province to province.</p>
<p>The carbon pricing systems used in the Maritime provinces are an interesting example for at least three reasons. First, unlike the rest of Canada, the region <a href="http://oee.nrcan.gc.ca/corporate/statistics/neud/dpa/menus/trends/comprehensive_tables/list.cfm">relies heavily on fuel oil for household heating</a>. Second, New Brunswick and Nova Scotia have had <a href="https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3610022201">the weakest GDP growth of any province over the past decade</a>. And third, the region <a href="https://www150.statcan.gc.ca/n1/daily-quotidien/170913/t001a-eng.htm">has three of the four</a> lowest median household incomes in Canada.</p>
<p>Consequently, the provincial governments in the Maritimes wanted to minimize the impact of carbon pricing on their provinces. Each proposed a provincially designed carbon pricing system to the federal government — as permitted by the Pan-Canadian Framework. </p>
<p>The resulting carbon pricing systems implemented in these three provinces reveals some of the inconsistencies. To understand the impact of the different provincial carbon pricing systems on individuals and families, we simulated the annual cost of carbon emissions for a typical household with the same energy consumption in each of the three Maritime provinces. </p>
<h2>Prince Edward Island</h2>
<p>The federal government rejected P.E.I’s original carbon pricing plan. Negotiations led to a <a href="https://www.canada.ca/en/environment-climate-change/services/climate-change/pricing-pollution-how-it-will-work/prince-edward-island.html">two-year agreement</a> that will have to be reworked in 2020. </p>
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<span class="caption">The federal government has raised taxes on gasoline in Prince Edward Island, but Premier Wade MacLauchlan has said the province will offset the increase by reducing other taxes.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Sean Kilpatrick</span></span>
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<p>The current agreement applies a carbon price to transportation fuels but not home heating fuel or electricity. The government has further buffered the impact by reducing an existing gasoline tax. Islanders <a href="https://www.princeedwardisland.ca/en/news/response-federal-governments-decision-regarding-its-climate-change-plan">will only pay an additional one cent per litre</a> on gasoline and other transportation fuels in 2019, rising to two cents in 2020.</p>
<h2>Nova Scotia</h2>
<p>The federal government approved <a href="https://climatechange.novascotia.ca/nova-scotias-cap-trade-program">Nova Scotia’s cap-and-trade system</a>. It covers emissions from electrical generation, industries that emit more than 50,000 tonnes of CO2e per year and distributors of liquid fuels and natural gas. The cost of emissions exceeding the cap starts at $20 per tonne in 2019, rising by five per cent per year, and can be passed to consumers.</p>
<p>Gasoline will cost Nova Scotians an extra one cent per litre in 2019 and rising to 1.2 cents in 2022. Home heating fuel will also cost more, starting at 1.3 cents per litre and rising to 1.6 cents. Electricity rates will rise too, increasing 0.10 cents per kilowatt hour (kWh) this year to 0.19 cents per kWh in 2022.</p>
<h2>New Brunswick</h2>
<p>New Brunswick proposed a climate fund, but the federal government <a href="https://www.canada.ca/en/environment-climate-change/services/climate-change/pricing-pollution-how-it-will-work/new-brunswick.html">rejected the proposal</a> and applied the federal backstop.</p>
<p>Normally, the backstop consists of a carbon levy on liquid fuels (gasoline and fuel oil), natural gas and the energy used to produce electricity, starting at $20 per tonne of CO2e (carbon-dioxide equivalent) in 2019 and increasing by $10 a year until 2022, when it will be $50 per tonne. But consumers in New Brunswick will not pay the backstop price for electricity. The federal government <a href="https://www.cbc.ca/news/canada/new-brunswick/coal-fired-power-plants-carbon-tax-1.4882669">effectively lowered cost of emissions released from coal-burning plants from $20 per tonne to $1 per tonne</a>, largely viewed as a politically motivated effort to help former Premier Brian Gallant.</p>
<p>The province’s carbon price on gasoline will start at 4.42 cents per litre and reach 11 cents per litre in 2022. Home heating oil is subject to a carbon price of 5.48 cents per litre in 2019, increasing to 13.69 cents per litre in 2022.</p>
<h2>Comparing household costs</h2>
<p>In our scenario, the household uses <a href="http://oee.nrcan.gc.ca/corporate/statistics/neud/dpa/showTable.cfm?type=CP&sector=tran&juris=atl&rn=21&page=0">2,800 litres of gasoline to fuel two vehicles</a>, <a href="http://oee.nrcan.gc.ca/corporate/statistics/neud/dpa/menus/trends/comprehensive/trends_res_atl.cfm">10,000 kWh of electricity</a> and <a href="https://www.efficiencyns.ca/guide/heating-comparisons/">2,000 litres of light-fuel oil for home heating</a>.</p>
<p>Household GHG emissions in P.E.I. and New Brunswick are 14.6 tonnes, while in Nova Scotia they are 18.5 tonnes. The difference lies in the way electricity is generated: fossil fuels generate about 40 per cent of the electricity in <a href="https://apps.neb-one.gc.ca/ftrppndc/dflt.aspx?GoCTemplateCulture=en-CA">P.E.I. and New Brunswick, and 75 per cent of the electricity in Nova Scotia</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/259849/original/file-20190219-43258-10lldj4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/259849/original/file-20190219-43258-10lldj4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/259849/original/file-20190219-43258-10lldj4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=371&fit=crop&dpr=1 600w, https://images.theconversation.com/files/259849/original/file-20190219-43258-10lldj4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=371&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/259849/original/file-20190219-43258-10lldj4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=371&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/259849/original/file-20190219-43258-10lldj4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=466&fit=crop&dpr=1 754w, https://images.theconversation.com/files/259849/original/file-20190219-43258-10lldj4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=466&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/259849/original/file-20190219-43258-10lldj4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=466&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Carbon costs for a typical household in the Maritimes.</span>
</figcaption>
</figure>
<p>In P.E.I., the household cost of carbon emissions, which only includes gasoline, begins at $28 in 2019 and rises to $56 in 2020. <a href="https://www.princeedwardisland.ca/en/news/response-federal-governments-decision-regarding-its-climate-change-plan">The province says it will return “every cent collected to Islanders.”</a></p>
<p>The costs for a household in Nova Scotia start at $64 in 2019 and rise to $85 in 2022, but the household does not receive rebates.</p>
<p>New Brunswick residents pay the backstop carbon price for gasoline and heating oil, but not for electricity. The annual cost is $245 in 2019 and almost $610 in 2022. They can <a href="https://www.canada.ca/en/department-finance/news/2018/12/minister-of-finance-confirms-amounts-of-climate-action-incentive-payments-for-2019.html">claim a “Climate Action Incentive” rebate on their taxes</a> and receive $256 in 2019 (rural residents receive an additional 10 per cent).</p>
<h2>The problem with rebates</h2>
<p>While rebates may appear to be an equitable solution, they are paid once a year, forcing low- and middle-income households to carry the additional costs of the carbon price on energy products throughout the year.</p>
<p>In addition, the refund is based on family size, not consumption. This means that someone heating with wood (and paying no carbon tax) receives the same refund as someone with the same income but heats with oil. On the other hand, households with carbon-tax expenditures exceeding the refund must absorb the difference.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/rethinking-canadas-climate-policy-from-the-ground-up-108456">Rethinking Canada's climate policy from the ground up</a>
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</em>
</p>
<hr>
<p>Reducing greenhouse gas emissions is central to the Pan-Canadian Framework. However, if carbon pricing is to make a meaningful contribution to emissions reduction in Canada, it must be:</p>
<ol>
<li><p>Consistent: The cost of emissions and the associated carbon pricing system should be independent of where someone lives.</p></li>
<li><p>Fair: Rebates to low- and middle-income households should be designed to minimize the impact of rising carbon prices, by making rebates available throughout the year <a href="https://www.alberta.ca/climate-carbon-pricing.aspx">as is done in Alberta</a>, for example.</p></li>
</ol>
<p>Without addressing issues such as these, opposition to carbon pricing can only be expected to grow.</p><img src="https://counter.theconversation.com/content/110842/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Larry Hughes does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Canadians will start paying for their carbon emissions this year, but the cost will depend on where they live.Larry Hughes, Professor and Founding Fellow at the MacEachen Institute for Public Policy and Governance, Dalhousie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1084062018-12-13T22:13:08Z2018-12-13T22:13:08ZOntario’s new climate plan is far from conservative<figure><img src="https://images.theconversation.com/files/250544/original/file-20181213-178570-1x6kxzx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Steel mills, like this one in Hamilton, Ont. emit greenhouse gases. Ontario must reduce its emissions from 161 megatonnes to 143 megatonnes by 2030.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/haglundc/2419205740">haglundc/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>In late November, the Ontario government unveiled its game plan to reduce greenhouse gas emissions and fight climate change by replacing the previous Liberal government’s cap-and-trade program. </p>
<p>The first few pages of the <em><a href="https://www.ontario.ca/page/made-in-ontario-environment-plan">Made-in-Ontario Environment Plan</a></em> contain messages you would expect from a conservative government, such as “taxpayers should not have to watch their hard-earned dollars be diverted towards expensive, ineffective policies and programs that do not deliver results.” Such statements attempt to justify the decision for a new approach as an ideological shift related to the transition from a liberal to a conservative government in Ontario. </p>
<p>But just how well does Ontario’s new environment plan conform to a conservative ethos, particularly compared to the previous cap-and-trade approach?</p>
<h2>The role of government</h2>
<p>The cap-and-trade approach sets a cap (or limit) for emissions. If that limit is exceeded, the surplus must be covered by purchasing a permit or allowance to emit the extra pollution. </p>
<p>Under this scheme, the <a href="https://ecofiscal.ca/carbon-pricing-works/">market determines</a> where the most efficient areas of emission reduction should occur. Firms are free to choose how they want to reduce emissions, if at all. Firms that have limited options to reduce emissions (or only have very expensive solutions) have the option of purchasing allowances — thus subsidizing emissions-reduction costs for other firms where reductions are easier or less costly to achieve. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/250570/original/file-20181213-178576-8x381a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/250570/original/file-20181213-178576-8x381a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/250570/original/file-20181213-178576-8x381a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/250570/original/file-20181213-178576-8x381a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/250570/original/file-20181213-178576-8x381a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/250570/original/file-20181213-178576-8x381a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/250570/original/file-20181213-178576-8x381a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Ontario Premier Doug Ford has vowed to fight carbon pricing.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Chris Young</span></span>
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</figure>
<p>The approach proposed in the new <em>Made-in-Ontario Environment Plan</em> involves a performance standard, a <a href="https://heinonline.org/HOL/Page?handle=hein.journals/capulr29&div=9&g_sent=1&casa_token=&collection=journals">requirement</a> for heavy polluters to reduce their emissions to a specific and inflexible target. It also creates a fund — the Ontario Carbon Trust — that uses taxpayer dollars to pay these polluters to reduce their emissions. </p>
<p>Under Ontario’s new plan, regulators, <a href="https://ecofiscal.ca/carbon-pricing-works/">in this case the government</a>, will have to monitor individual companies to ensure they are meeting their commitments. The government will then decide via an “independent board” which firms will receive taxpayer dollars to pay for pollution reduction.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/taxpayers-will-back-a-carbon-tax-if-they-get-a-cheque-in-the-mail-99825">Taxpayers will back a carbon tax if they get a cheque in the mail</a>
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<p>The government bureaucracy involved in setting, monitoring and enforcing performance standards is much more significant than the cap-and-trade approach, which is market-based. Ontario’s policy should be particularly infuriating for anyone with a business background or a supporter of “small” government. Under the new plan, the government is essentially trying to run the business of emissions reduction. </p>
<p>As a consequence, the costs of reducing emissions is much higher, given the additional bureaucracy needed to make sure firms comply. But there is also lost efficiency from the firms choosing their own ways to reduce emissions. <a href="http://www.rff.org/files/sharepoint/WorkImages/Download/RFF-DP-09-40.pdf">Some studies</a> have calculated that regulations similar to Ontario’s proposed approach cost taxpayers 43-55 per cent more than a cap-and-trade system. </p>
<p>On our conservative ethos scorecard, it is:</p>
<blockquote>
<p>Cap-and-trade: 1</p>
<p>Environment Plan: 0</p>
</blockquote>
<h2>Picking winners</h2>
<p>Apart from the initial start-up costs associated with establishing the market, a cap-and-trade approach does not rely on tax dollars. </p>
<p>Instead, a price is placed on emissions, and this acts as an incentive for a business to lower its emissions — they save money by taking action themselves. </p>
<p>In contrast, the new Ontario plan uses taxpayer dollars to not only set up a regulatory body to evaluate proposals from businesses to reduce emissions (that is, to pick “winners”), but also rewards these businesses with taxpayer dollars that pay them to reduce emissions. </p>
<p>This creates an incentive to emit more! Why would a company reduce emissions on its own, when it can get the government to pay the company to do it? Such handouts are rarely <a href="https://www.economist.com/briefing/2010/08/05/picking-winners-saving-losers">cost-effective</a> as it is difficult to track whether the investment leads to a reduction in emissions.</p>
<p>Ontario’s plan requires more taxpayer dollars and uses them to subsidize companies’ emissions reductions. </p>
<p>Conservative ethos scorecard update:</p>
<blockquote>
<p>Cap-and-trade: 2</p>
<p>Environment Plan: 0</p>
</blockquote>
<h2>Driving innovation</h2>
<p>Under a cap-and-trade approach, there is a built-in incentive for businesses to innovate, since the more emissions a business abates, the cheaper the operation becomes. Ontario’s new approach is in direct contradiction to this approach. </p>
<p>Other governments, including Australia, have <a href="http://www.environment.gov.au/climate-change/government/emissions-reduction-fund">tried plans similar to Ontario’s new policy</a> with <a href="https://theconversation.com/australias-emissions-reduction-fund-is-almost-empty-it-shouldnt-be-refilled-92283">little evidence of success</a>. Often the subsidies are instead “politically captured” by existing influential interests: Innovation gets stifled as powerful and well-established firms or sectors lobby and attract subsidies, which in turn limits the opportunity for smaller, more transformative organizations to grow. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/australias-emissions-reduction-fund-is-almost-empty-it-shouldnt-be-refilled-92283">Australia's Emissions Reduction Fund is almost empty. It shouldn't be refilled</a>
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</p>
<hr>
<p>And where is the incentive to do anything now? Why not keep emitting so you can qualify for a subsidy the next year? </p>
<p>Ontario’s plan may not drive innovation or allow businesses to set their own path forward, free from government intervention. </p>
<p>Conservative ethos scorecard update:</p>
<blockquote>
<p>Cap-and-trade: 3</p>
<p>Environment Plan: 0</p>
</blockquote>
<h2>Move towards the middle</h2>
<p>Cap-and-trade may not be the final answer of how we solve climate change, but it represents a much cheaper and more market-friendly option than the current proposal. </p>
<p>Now comes the hard part for supporters of Premier Doug Ford’s Ontario Government: the cap-and-trade approach also better reflects conservative ethos. </p>
<p>The coming weeks will be an interesting time for the Ford government. Its newly announced plan to fight climate change will substantially grow the size of the Ontario government compared to Liberal scheme they scrapped.</p>
<p>The previous Ontario government embraced a somewhat conservative ethos to implement a market-based cap-and-trade program. Essentially, this was a move to the centre. As Ford attempts to distance his government the Liberals, he has actually moved further left from the traditional conservative ethos.</p>
<p>One thing is for sure. If we are to really address all of the environmental issues outlined in the <em>Made-in-Ontario Plan</em>, each of us, regardless of our political stripes, needs to work together.</p><img src="https://counter.theconversation.com/content/108406/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Ontario’s new environment plan scores poorly on conservative ethos.Jennifer Lynes, Associate Professor of Environment and Business, University of WaterlooDan Murray, Lecturer in the School of Environment, Enterprise and Development, University of WaterlooJason Thistlethwaite, Assistant Professor, University of WaterlooLicensed as Creative Commons – attribution, no derivatives.