With Ontario abandoning cap and trade, and Québec’s market not on track to meet its goals, Diana Rojas looks at Canada’s mixed experience of carbon markets ahead of crucial elections
While proponents for a nation-wide carbon pricing system in the US are engaged in a David and Goliath battle against the climate change-denying Trump administration, across the border in Canada the picture could not look more different.
There, Prime Minister Justin Trudeau will next month fight an election defending his four-year-old government’s controversial bid to impose carbon pricing across the country, known as the Pan-Canadian Framework on Clean Growth and Climate Change (PFC).
With the Trudeau government potentially facing obliteration for a series of mishaps, including a damaging ethics scandal, and opposition from some of the country’s most powerful provinces to its carbon-tax plan, its progressive agenda hangs in the balance.
Premier François Legault has warned that Quebec will likely not reach its promised target of reducing emissions 20% below 1990 levels by 2020
Under the PFC, which seeks to lower Canada’s carbon emissions 30% from its 2005 levels by 2030, provinces were given until 2018 to develop their own carbon tax or emissions trading system, at a minimum price of C$10 per ton in 2018, rising to $50 per ton by 2022.
The western provinces of British Columbia (BC) and Alberta had already brought in a carbon tax system – with BC’s revenue-neutral scheme held up globally as an example of a successful tax (see Lesson’s from British Columbia’s carbon tax). The eastern provinces of Prince Edward Island, Newfoundland and Labrador are in the process of introducing a carbon tax, but Saskatchewan, Ontario, Manitoba and New Brunswick refused to comply and a newly elected government in Alberta this year has moved to revoke the tax. This led the federal government to levy a carbon tax on recalcitrant provinces in April and July this year – a move the provinces are challenging in the courts.
The experience of cap and trade has also been mixed, with Canada’s biggest economy, Ontario, abruptly pulling out of the Western Climate Initiative trading market with Québec and California in 2018, after the election of arch-conservative premier Doug Ford.
And although Québec has been held up as a poster child for cap and trade, which has been in effect since 2013, officials in the province have been overhauling its $1.3 billion Green Fund amid criticism that it had not met any of its goals.
Recently, Premier François Legault, whose conservative Coalition Avenir Québec party was also elected in 2018, warned that the province will likely not reach its promised target of reducing emissions 20% below 1990 levels by 2020. The last year for which statistics are available, 2016, showed a 9.1% reduction on 1990 levels. Québec’s goal for 2030 is more ambitious than the pan-Canadian plan, at 37.5%.
A December report noted that the fund was running a surplus of more than $900m, with only 17 of the 185 projects that had been funded actually aimed at reducing emissions (for example, some transportation projects were using the funds to pay drivers) and high administrative costs estimated at around 5% of the fund.
There’s never been a clear appetite by the government to expedite the process of developing more offset protocols that will result in significant volumes
Meanwhile, only 678,000 tons of offset credits to date have been created from emissions reducing projects in the province. Its cap-and-trade partner, California, has generated 150 million offset credits during the same time, though admittedly California’s economy is much bigger, with a gross domestic product (GDP) of $3trn in 2018, compared with about $400bn in Québec.
In June, the fund was renamed the Electrification and Climate Change Fund (ECCP), and decision making was transferred from an in-house management committee (the Conseil de gestion du Fonds vert) to the Ministry for Environment and the Fight Against Climate Change (Ministère de l'Environnement et de la Lutte contre les changements climatiques)
A ministry press release in June noted “the creation of five task forces consisting of experts, young people, and civil society representatives” that will advise the plan’s development, with a big reveal slated for 2020.
Caroline Brouillette, senior researcher at the Québec environmental NGO Equiterre, said green groups had concerns about ECCP being put under the auspices of a government ministry, instead of an independent body. “It has definitely been politicised,” she said, “but it might be important to say that we can’t say at this point that we’ll meet our emissions target in 2020 because of the nature of the carbon market.”
Québec publishes its greenhouse gas (GHG) data every two years, with the next report coming out in 2020. Brouillette said the full picture will only be seen in 2022, and will have to take into account emissions reductions in California.
There was never a mandate for the Green Fund to invest in offset credits, said Katie Sullivan, managing director of the International Emissions Trading Association (IETA). The offset programme “has been slow to launch for a variety of bureaucratic and political reasons,” she said, because “there’s never been a clear appetite by the government to expedite the process of developing more offset protocols that will result in significant volumes.”
We have to nuance that not everything can be measured
To date, there have been only five protocols: landfills, manure storage, coal mine fugitive emissions, drainage systems around active coal mines, and ozone-depleting substances. Sullivan said the new government plans to add forestry as a protocol this year or next, which would likely increase offset volume.
Brouillette said that while some criticisms of the Green Fund were valid, others may have belied a lack of understanding of both how the carbon market works, and how emission reductions are accomplished.
“We have to nuance that not everything can be measured,” she said. For example, some climate change awareness campaigns were funded, “and you can’t measure how much GHG reductions were happening with those,” she said.
Also Québec, with abundant carbon-free hydroelectricity, has a high proportion of emissions (43%) coming from transit, a sector that is difficult to tackle in the short term.
“There is a huge potential to provoke some long-term changes,” said Brouillete, who said her group would be watching to make sure the funds don’t go only towards electrification projects.
Under the Québec cap-and-trade system, electrical and fuel distributers have to buy 100% of their allowances through auction. Other industries that are emissions-intensive, or have more trade exposure, by comparison, (including steel, aluminium, cement and paper) get a free allocation to prevent Québec industry fleeing to provinces with a lower carbon price.
If Conservatives win a majority there could be risks and uncertainty for all existing provincially administered programmes, including Québec’s
Brouillete said that those free allocations should allow the province to reach its current GHG reduction goals. But they’ll need to be revised in future “as they do not reflect the emergency needed to completely decarbonise our economy before 2050,” she said.
Sullivan of IETA says a lot is riding on the outcome of the 21 October federal election, including the Québec carbon market.
If the opposition Conservatives win, but not by a majority, she suggests, they won’t be able to carry through their pledge to dismantle major pieces of federal legislation, including the new Greenhouse Gas Pollution Pricing Act.
Supreme Court decisions on provincial carbon pricing reference cases in Alberta and Manitoba will also be critical, she said.
“If Conservatives win a majority and Supreme Court deems the federal government as having ultimate authority to regulate and price GHGs under POGG [peace, order and good government] of the Constitution, there could be risks and uncertainty for all existing provincially administered programmes, including Québec’s."
This article is part of the in-depth Carbon Pricing briefing. See also: