Emissions will rise under Conservative climate plan

This article appeared in Policy Options on Aug. 21, 2019. It has been reprinted here with the publication's permission.

For more than two decades, I have evaluated promises by Canadian politicians to reduce greenhouse gas emissions. My work would be straightforward if a politician committed to a rising carbon price or to technology regulations of increasing stringency. Either of these policy approaches would transparently reduce GHG emissions by an amount we evaluators could reliably estimate, based on long-standing research showing how firms and individuals respond to changes in relative energy prices and emerging technological options for adopting low-GHG energy in buildings, transportation and the production of goods and services.

Unfortunately, Canadian politicians have rarely implemented the essential carbon pricing and/or regulatory policies. Instead, they offer lists of activities and programs that are either silent on policy or suggest that non-compulsory policies, like information campaigns or subsidies, will cause significant reductions — which is not the case. The Conservatives' proposed climate plan fits this pattern, and my modelling suggests it would ultimately result in increased GHG emissions between 2020 and 2030.

Ottawa’s current GHG forecast

In several past evaluations, I and my research associates have correctly forecast when government policies would have negligible effect, even though governments at the time claimed they would have a significant effect.

Chronic ineffectiveness at the Canadian federal level finally changed in the period 2015-2019, when the government of Prime Minister Justin Trudeau made precise commitments on carbon pricing levels and regulatory stringency, and then implemented GHG-reducing legislation and regulations. Canadian federal policies implemented or under development include:

• The backstop carbon price, at $20 (per tonne of CO2 emitted) in 2019 and scheduled to reach $50 in 2022. (The carbon price is called a backstop carbon price because the federal government only applies it to provinces and territories that do not have their own equivalent carbon pricing policy.)
• The coal plant phase-out regulation,
• Methane emission regulations,
• The Clean Fuel Standard,
• The output-based pricing system that applies the backstop carbon price to a portion of the emissions from trade-exposed industries like steel, cement, aluminum, chemicals, oil and gas, metals and pulp and paper.

Researchers with whom I am associated have modelled these policies, and I note that our forecasts of the policy effects concur approximately with the federal government’s own forecasts. This is because, after years of methodological disputes in the 1980s and 1990s, the past decade has seen a convergence of climate policy forecasting and evaluation methods around the world, thanks in part to the co-ordinating and comparison role played by Stanford University’s Energy Modeling Forum.

Because these new federal policies are, as of mid-2019, in force or at least well-advanced in the implementation process, they provide a solid reference point for evaluating the climate plans of other political parties as Canadians prepare for the October 2019 federal election. I use the current Canadian federal policies as a comparison for the Conservatives' climate plan released in June 2019 by Leader Andrew Scheer.

Evaluation

I limit this evaluation to one metric: GHG reduction. The Conservative party has emphasized that its climate plansaves money for Canadians. This might be true, but it is important for Canadians to know whether the reason is because the plan does not reduce emissions. A plan that has little effect on emissions might well have lower energy costs. In this case, however, one would expect an honest politician to say, “My climate plan allows GHG emissions to keep rising so that energy costs do not.”

In contrast with the Liberal climate policies, the Conservative climate plan is more challenging to model because its emission and technology claims are assumed to happen without carbon pricing and mostly without regulations. Each of these claims must be assessed individually before combining the policies to perform a simulation. Thus, in the evaluation that follows, I shift from discussing actions (like fuel switching or energy efficiency) to discussing the effectiveness of the proposed policies for causing these actions to happen.

1. The Conservative climate plan would eliminate the federal backstop carbon price. This means that while provincial government carbon prices applied to consumers and firms in Quebec and B.C. would remain, carbon pollution would be free elsewhere in Canada. A price on carbon pollution causes more adoption than otherwise of low-emission vehicles, electricity plants, buildings and industrial equipment. Unless the removed carbon price is replaced with regulations that require increased adoption of technologies like the zero-emission vehicle mandate of Quebec and B.C., such GHG-reducing actions would decline, and emissions would rise.
2. The Conservative plan would eliminate the Clean Fuel Standard and instead “work to increase the availability and use of renewable fuels.” The CFS is a regulation that increases the use of renewable fuels and electricity. Decades of evidence shows that this increase will not occur voluntarily in energy markets, which is why carbon pricing and regulations are essential. Removal of the CFS regulation would decrease renewable fuel use, and emissions would rise.
3. The Conservative plan would eliminate the Output Based Pricing System, which charges industry the backstop carbon price for emissions in excess of an emission standard. The Conservative plan claims it would also have emission standards for large industry, but does not say whether these would be more or less stringent than those in the current Output Based Pricing System. One must assume they would be less stringent because if they were as stringent (or more stringent), the plan would say this. Where industry fails to meet the standards, the Conservative climate plan would require industry to make investments under a new Green Investment Standards Certification program. It is impossible to estimate with confidence whether this program would reduce emissions from what they otherwise would be. History has shown that industry can appear to be reducing emissions simply by making emission-reducing investments that would have occurred anyway. The replacement of the Output Based Pricing System with this program will increase emissions.
4. The proposals of the Conservative plan for each key sector reveal that the intent is to replace the carbon pricing and regulatory policies of the federal government with information and subsidy policies, although this is never stated explicitly. An example is the plan’s lead slogan, “green technology, not taxes.” This sounds alluring. But independent experts have frequently explained and empirically demonstrated why green technology innovation is most effective when incentivized by carbon pricing or regulations that make these technologies financially attractive. Based on the evidence, it would be irresponsible to assume that the following subsidies and voluntary initiatives would reduce emissions:

• The proposed Green Technology and Innovation Fund should have very little effect on emissions and would be difficult to measure because of the inability to know whether the investments that are funded would have occurred anyway.
• The proposed Green Home Tax Credit would likewise have little effect on emissions because most recipients would receive the credit for investments they would have made anyway. A large literature shows the high free-riding effect in such programs.
• The proposed Green Patent Credit is based on the myth that a dearth of low-emission technologies prevents us from reducing GHG emissions. In fact, it is the low cost of burning fossil fuels (and the low or zero cost of CO2 emissions) that prevents us from running vehicles, heating homes and processing materials with known, commercially available zero-emission technologies that use electricity or bioenergy. The Green Patent Credit is likely to have no effect on emissions.
• The proposed Green Home Retrofit Code is an information program that, like others, will have negligible effect in the absence of carbon pricing or regulations.
• The proposed Net-Zero Ready Building Standard will have no effect. A significant percentage of buildings already use electricity for space conditioning (heating or air conditioning) and water heating, and virtually all buildings can be converted to be 100 per cent electric or a mix of electricity and bioenergy at any time. They will shift to net zero when carbon pricing or regulations make it economical to replace natural gas and heating oil with electricity or to substitute biomethane into the natural gas grid.
• The proposed Energy Savings Performance Contracting program is a subsidy program in that it reduces financing costs for people investing in energy-efficiency upgrades that are paid off through bill savings. Such programs have existed for decades. Research consistently shows that they have a negligible effect since the extra financial leeway also enables home retrofitters to expand floor area and energy-related services.
• The proposed Greening the Grid initiative uses words like “foster” and “pursue.” If the coal plant phase-out regulation of the Liberal government is rescinded (the Conservative plan is silent on this), and the Output Based Pricing System is eliminated, the effect will be significantly greater GHG emissions in the Canadian electricity sector relative to the scenario in which all policies are frozen at their 2019 condition.

The following figure provides my estimate of the evolution of Canadian GHG emissions under the Conservative climate plan. As expected, the removal of carbon pricing and key regulations, and their replacement with voluntary programs and modest subsidies, would lead to Canadian emissions that continue to increase between 2020 and 2030. And this is even under the assumption that oilsands production in Canada would not grow appreciably.

The climate plan unveiled by the Conservative Party of Canada in June 2019 is a throwback to an earlier era in which climate-insincere politicians tried to trick climate-concerned citizens into believing that they were taking action to reduce GHG emissions with information and subsidy programs alongside vague statements about GHG-reducing actions that somehow occur without carbon pricing and/or regulations. In reality, carbon prices must rise or regulations for technology and energy must become more stringent. There is no other way to significantly decarbonize the economy. The world’s leading independent experts all agree on this.

My simulation of the Conservative plan shows that it would lead to rising Canadian emissions. Canadian emissions in 2030 would be 100 megatonnes lower under the Liberal policies than under the proposed Conservative climate plan.