The federal climate plan provides the clarity that Canada’s economy needs - The Globe and Mail | Canada News Media
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The federal climate plan provides the clarity that Canada’s economy needs – The Globe and Mail

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Grant Bishop is associate director, research at the C.D. Howe Institute. He lives in Calgary.

The horse is out of the stable. Earlier this month, the federal government announced its plan for meeting Canada’s targets for greenhouse gas emissions under the Paris Agreement, the centrepiece of which is a carbon price of $170 per tonne of greenhouse gas emissions in 2030. Ottawa also announced that it will explore using border carbon adjustments to address “carbon leakage,” and will forgo a Clean Fuel Standard for gaseous fuels.

To those who are suspicious of Ottawa, this plan may feel like a jab at Canada’s beleaguered petroleum industry. And to be sure, the painful adjustments involved should not be downplayed. Based on today’s engineering, a $170-per-tonne carbon price would mean much higher costs for oil sands producers or gas-fired electricity generation. It would mean higher costs for heating homes with natural gas or buying gasoline.

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But hard as it may be to swallow for many, this plan is exactly what Canada needs.

Uncertainty around national emissions policy has long loomed as an economic threat to Canada. The plan provides our energy producers and consumers with a clear and credible path for future carbon pricing. It provides a partial remedy for mounting international concerns around Alberta’s oil sands. Global investors now see a credible projection for Canada to meet its Paris targets at this price, and investors and creditors can more confidently estimate the compliance costs facing companies and specific assets.

Technology, meanwhile, has transformed how we move, live and work, and it will continue to do so. What was impossible yesterday can become commonplace tomorrow. And innovation responds to incentives – such as a carbon price.

By announcing the trajectory for carbon pricing, Ottawa has anchored expectations. This helps companies and households make informed decisions about new investments or retrofits. Knowing the future price, companies can build business plans for transformations to reduce emissions. Engineers can propose new designs and calculate the savings these will yield.

The alternative to carbon pricing is regulating emissions from each and every activity. This runs the risk of government picking winners and losers based on political expedience or lobbying. Instead, in this climate plan, the federal government has largely chosen market forces over central planning.

This good feature nevertheless comes with important caveats.

First, the federal government should publish its greenhouse gas projections and energy-use assumptions for each sub-sector and province. A carbon price of $170 per tonne by 2030 roughly aligns with estimates by the Parliamentary Budget Office and EcoFiscal Commission for meeting Canada’s Paris targets. But Ottawa should allow us to peer under the hood and kick the tires on its modelling.

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For earlier projections, Environment and Climate Change Canada published detailed data tables. The projections that undergird Ottawa’s strategy should also be an open book, because more information helps markets work better.

Second, Ottawa did the right thing by kiboshing the Clean Fuel Standard (CFS) for gaseous fuels. Natural gas is much less carbon-intensive than liquid fuels, and an economy-wide carbon price is a better way of rationing natural gas use. The framework around carbon pricing also provides greater flexibility to offset impacts on households and trade-exposed industries that use natural gas.

Ottawa also published draft regulations for the CFS for liquids fuels last Friday. The “Liquids CFS” will create a market for reducing emissions, and specified activities (e.g., carbon capture and sequestration, substituting biofuels, or recharging electric vehicles) will generate credits. Fuel suppliers need credits to comply with prescribed reductions in the carbon intensity of a given liquid fuel (e.g., gasoline or diesel), and to work efficiently, the market will need good information. Indeed, the volatility of prices for credits under British Columbia’s Low Carbon Fuel Standard – which ranged from $33/tonne to $324/tonne during 2019 – reflects how large information gaps surround supply and demand in this market. The market for Liquids CFS credits will need much better disclosure.

Third, Ottawa must address carbon leakage. Border carbon adjustments (BCAs) involve imposing tariffs on the embedded emissions in imports and rebating carbon levies to exporters (analogous to GST rebates on exports). In this way, BCAs level the playing field between domestic and foreign producers. Ottawa’s contemplation of BCAs follows statements that the European Union and U.S. president-elect Joe Biden will pursue such measures.

Conceptually, BCAs are permissible under international trade law, but implementing BCAs is complex in practice. For example, for BCAs to comply with WTO rules, Canada would likely need to phase out the current pricing system for large emitters. As well, establishing default carbon intensities for each imported product and origin country will be data-intensive and difficult. Finally, unless Ottawa exclusively collects revenues from pricing carbon, the federal government would face fiscal and administrative challenges for rebating carbon levies to exporters.

But even though it is an imperfect work-in-progress, the federal climate plan crucially and positively clarifies how Canada plans to achieve the Paris emissions targets. Ottawa has now provided a road map for businesses and households, but the real work remains ahead.

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Economy

B.C.’s debt and deficit forecast to rise as the provincial election nears

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VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.

Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.

Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”

The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.

Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.

“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”

Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.

Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.

Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.

B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.

The election is expected to be called on Sept. 21, with the vote set for Oct. 19.

“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”

Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.

Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.

The premier said that now is not the time to reduce supports and services for people.

Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.

Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.

This report by The Canadian Press was first published Sept. 10, 2024.

Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.

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Mark Carney mum on carbon-tax advice, future in politics at Liberal retreat

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NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.

But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.

He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.

Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.

Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.

Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.

This report by The Canadian Press was first published Sept. 10, 2024.

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Nova Scotia bill would kick-start offshore wind industry without approval from Ottawa

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HALIFAX – The Nova Scotia government has introduced a bill that would kick-start the province’s offshore wind industry without federal approval.

Natural Resources Minister Tory Rushton says amendments within a new omnibus bill introduced today will help ensure Nova Scotia meets its goal of launching a first call for offshore wind bids next year.

The province wants to offer project licences by 2030 to develop a total of five gigawatts of power from offshore wind.

Rushton says normally the province would wait for the federal government to adopt legislation establishing a wind industry off Canada’s East Coast, but that process has been “progressing slowly.”

Federal legislation that would enable the development of offshore wind farms in Nova Scotia and Newfoundland and Labrador has passed through the first and second reading in the Senate, and is currently under consideration in committee.

Rushton says the Nova Scotia bill mirrors the federal legislation and would prevent the province’s offshore wind industry from being held up in Ottawa.

This report by The Canadian Press was first published Sept. 10, 2024.

The Canadian Press. All rights reserved.

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