The report comes at a time when the Harper government is facing growing pressure to explain how it plans to meet its 2020 commitment to bring greenhouse gas emissions to a level 17 per cent below the level at 2005. A new study by the independent Pembina Institute contends that without significant new curbs on oil and gas emissions, the Harper government will fall far short of meeting its 2020 commitment—while the U.S. is within reach of meeting its identical commitment for a 17 per cent reduction.
“By boosting energy consumption and thus emissions, subsidies aggravate climate change and worsen local pollution and congestion,” David Lipton, the IMF’s First Deputy Managing Director, says. Subsidy reform worldwide, he said, could play a “significant” role in reducing greenhouse gas emissions. Moreover, there would be, he contends, “substantial benefits of using fiscal instruments to achieve climate change objectives,” adding, “the time has come for subsidy reform and carbon taxation.”
Curbing subsidies would be a first step. Yet last year, the commissioner of the Environment and Sustainable Development found that Finance Canada was unable to provide a full financial accounting of federal subsidies for the fossil fuels industry (coal, oil, and natural gas).
But for the four fiscal years, 2007-2008 to 2011-2012, the environmental commissioner estimated that direct spending in support of the fossil fuels industry amounted to $508-million while tax incentives cost the federal government another $1.47-billion. For example, the accelerated capital cost allowance for oil sands, a tax incentive which is being phased out over a four-year period, is a subsidy worth about $300-million a year to oil sands producers.
The report added that “for some tax expenditures, Finance Canada is able to estimate the cost attributable to a group of sectors, including mining, oil and gas and clean energy, in which fossil fuels represent a majority of revenue. The cost of these tax expenditures amounted to an additional $2-billion for the fiscal years 2006-07 to 2010-11.” Moreover, the report said, this amount does not include the cost of some tax incentives, such as the Canadian Exploration expense.
But adopting fiscal instruments to deal with climate change, as the IMF urges, will require more than curbing subsidies and tax incentives. It will also mean pricing carbon—greenhouse gas emissions—and dealing with what economists call externalities. As the U.S. Economic Report of the President 2013 states, an externality exists if one person’s action imposes costs on another person, without those costs being paid by the person taking the action.
In the case of climate change, for example, the costs of emissions “are borne by others, including future generations, and these costs are not reflected in the price of greenhouse gas emissions.” This market failure underlying climate change, the report says, “clarifies the need for government to protect future generations that will be affected by today’s emissions.”
The most effective and transparent market-based solution in pricing carbon and dealing with the externality issue would be a carbon tax, but the Harper government opposes this because it is a “tax.” Instead, the Harper government is expected to adopt a clumsier sectoral approach for the oil and gas industry.
The Pembina Institute warns that to meet the 2020 target, total emissions from all sources in Canada will have to fall to 607 million tonnes a year by 2020, compared to 740 million tonnes in 2005, and 692 million tonnes in 2010. But current projections show that emissions will be 720 million tonnes in 2020, or about 113 million tonnes, or almost 20 per cent, above the target. Furthermore, further cuts will be needed beyond 2020.
After estimating possible emissions reductions in other sectors of the economy, the Pembina Institute calculates that the oil and gas industry would have to reduce emissions by a whopping 86 million tonnes to just 118 million tonnes by 2020; oil and gas emissions totalled 154 million tonnes in 2010 and are projected to grow, with oil sands expansion, to 204 million tonnes in 2020. According to figures cited by the Pembina Institute, greenhouse gas emissions from the oil sands alone are projected to increase from 48 million tonnes in 2010 to 104 million tonnes in 2020, making the oil sands by far Canada’s fastest growing source of greenhouse gas emissions.
Moreover, if oil sands oil is piped to Central and Eastern Canada, replacing imported conventional oil, greenhouse gas emissions per litre of gasoline, based on a well-wheels measure, would be 22 per cent higher; if the oil and gas industry succeeds in significantly curbing emissions, the Pembina Institute calculates, emissions per litre of gasoline would still be 10 per cent higher than gasoline from conventional oil.
Hence the need for significant measures to curb emissions in the oil and gas industry. Indeed, “the level of contribution reflected in the federal government’s oil and gas regulations will be the determining factor in whether Canada achieves its 2020 target,” the Pembina Institute warns, arguing this will require a carbon price of at least $100 a tonne of greenhouse gas emissions, and preferably $150 a tonne, by 2020. Alberta’s current price in its climate policy is a token $15 a tonne, which is far too low to have any meaningful impact since it raises the effective average cost per barrel of oil just eight cents.
The Harper government is now facing its moment of truth. Unless it is prepared to deal strongly and quickly with fossil fuel emissions and price carbon at a level sufficient to deliver real change, it will almost certainly be unable to meet its 2020 climate change commitment, reinforcing its reputation as an environmental outlier.
Original Article
Source: hilltimes.com
Author: DAVID CRANE
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