Advisory Panel to Canadian Government recommends national Cap and Trade Program

27 janvier 2011

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In a report released yesterday entitled "Parallel Paths: Canada-U.S. Climate Policy Choices" , the National Roundtable on the Environment and Economy (NTREE) said that, given the uncertainty over U.S. climate change policies, the Canadian government should create its own national climate change regulations and then adapt to fit U.S. policies at a later date. In this report, the NRTEE reached four conclusions with respect to the relationship between Canadian and US climate policies:

1) Canada’s unique emissions profile and economic structure mean that matching Canada's greenhouse gas (GHG) emissions targets with those of the U.S. would lead to higher carbon prices in Canada. If the Canadian government followed through with its proposal of matching Canada's GHG targets to those of the U.S., fewer emission reductions would in fact occur due to the projected higher growth of emissions in Canada than in the U.S. The result would be that Canada would not meet its stated 2020 GHG reduction target.

2) Competitive issues are only significant for about 10% of the Canadian economy (i.e. that portion which is considered emissions-intensive and trade-exposed), including sectors such as oil and gas, mining and cement manufacturing.

3) Trade measures in the U.S. legislative proposals (i.e. the Kerry Boxer Bill  and the Waxman-Markey Bill ) and low-carbon fuel standards  pose manageable economic risks Canadian industry should Canada adopt equally stringent climate change policies as the U.S.

4) Costs imposed by any climate policies that the Canadian government implements (and resulting emission reductions) will have the most impact on Canadian industry. Costs to businesses arising from U.S. policies or from differences between Canadian and U.S. policies will not be the only source of economic costs.

The NRTEE argues that Canada would enhance its economic competitiveness by regulating GHG emissions now and avoiding more expensive actions later. The NRTEE recommends that the government implement a "Transitional Policy Option", in which it calls for a national cap-and-trade system that would, among other things, involve contingent pricing of GHG emissions at a price no more than $30/tonne CO2e higher than in the U.S., ii) auction permits for GHG emissions and iii) allow industry participants to buy and sell those emissions permits and other international emissions permits and domestic offsets to keep prices low for Canadian firms. The NRTEE report said that this kind of cap-and-trade system would "walk a middle line between harmonizing with the U.S. on carbon price and on emission-reduction targets, balancing competitive and environmental concerns", provide the industry with more flexibility than a strict regulatory approach, and reduce the overall cost to the country.

Both the U.S.and Canadian governments have committed to reducing GHG emissions by 17% below 2005 levels by the year 2020. However, even if all the NRTEE's policy advice is adopted, the Canadian government would not be on track to meet its 2020 target. The NRTEE's recommendations would result in emissions cuts of 3% below 2005 levels by 2020 and without such action, the level would be 10% higher than 2005 levels

In preparing this report, the NRTEE undertook "the most comprehensive analysis yet published on the economic risks and opportunities for Canada of climate policy in the context of the Canada-United States relationship" by completing over a year of analysis and original modelling to determine how far and how fast Canada could go to meet its stated emission reduction targets while growing the economy.

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