EnviroEconomics: Another Climate Plan Too Far? Canada Releases its post-2020 GHG Ambition

Today, Canada published its proposed greenhouse gas (GHG) reduction plan for the Paris Conference of the Parties to be held in November and December this year. Called an Intended Nationally Determined Contribution (INDC), it forms the basis of the federal government’s climate policy ambitions to the year 2030, and by extension sets the benchmark against which the provinces will be judged. Together with the INDCs of other countries, it becomes a key ingredient in the negotiations for a global climate deal at Paris to cut carbon emissions ensuring the planet does not exceed 2oC warming by 2050.

Canada’s Paris INDC is the successor to our current 2020 plan agreed at the Copenhagen CoP meeting in 2009. At that time, Canada aligned its 2020 GHG reduction target with that of the United States. Our target is to reduce emissions by 17% below 2005 levels by 2020. Currently, the country is nowhere near achieving that target. Independent forecasts from the Commissioner of the Environment and Sustainable Development (2014) as well as the former National Round Table on the Environment and the Economy (2012), showed that without additional measures, Canada would likely only get about half-way to its target by 2020.

New analysis, reflecting the currently depressed oil prices, confirms the Copenhagen gap:

Already some controversy has developed over Canada’s INDC. Other major emitting countries, such as the U.S. and the European Union, have already submitted theirs to the United Nations.  An initial soft deadline of March 31st for doing so has come and gone. Canada is now under pressure to make public its INDC by the time of the G7 Summit in Germany in early June. Chancellor Merkel is putting a significant push on climate change as an agenda item and wants all G7 members to be public by then. Canada and Japan remain the holdouts for now.

It has also been controversial due to the federal government’s public explanation that the delay was due to the lack of information from the provinces. A letter from federal environment minister Leona Aglukkaq to her provincial counterparts chided them for not providing sufficient information on their own plans for the federal government to aggregate them into a national INDC.  As a federation, Canada’s overall effort on GHG reductions will necessarily incorporate both federal and provincial/territorial actions.

Based on this understanding, we have analyzed what the INDC means to Canadian climate policy and our emissions trajectory to 2030 and set out below our assessment as to the relative stringency and effectiveness of what Canada will be proposing at the UN climate talks in Paris.

  •  Canada’s 2030 target – 30% below 2005 levels provided global action by all emitters occurs and the United States and Canada have an agreement on oil and gas sector emissions. This would be 524 MT in 2030 or a 279 Mt pledge below forecast levels.
  •  Canada will continue to adopt a sector-by-sector, regulatory approach to reducing emissions with no economy-wide carbon pricing regimes such as a carbon tax or cap-and-trade system at the federal level.
  •  Oil sands bifurcated approach – Canada’s fastest-rising and most extensive emissions sector requires a distinctive approach to compensate for its emissions.  Canada is likely to seek an agreement with the United States on a joint, collaborative, or aligned approach to oil and gas sector emissions. This is aimed at maintaining the competitiveness of this important industrial sector.
  •  New sector-by-sector regulations in the non-oil and gas sectors will go ahead, likely targeting methane with the United States, chemicals, fertilizers, and natural gas-fired electricity.
  •  Provincial emissions in the areas of transportation, energy efficiency, and buildings are expected to contribute to overall emissions reductions as are carbon pricing schemes.
  •  Previous GHG forecasts relied on oil price forecasts that are now likely high. Revising downwards oil prices and associated production forecasts would lower Canada’s net GHGs, where low oil price production drops would be offset somewhat with increased emissions in buildings, transport and manufacturing.
  •  UNFCCC land use accounting rules granted Canada a significant credit in net emissions.  This could change upwards from current levels, but would require significant negotiating effort internationally.
  •   Canada will seek to purchase carbon offsets or emission credits globally to cover some or all of the oil sands emissions.

The architecture of Canada’s INDC is revealing.

First, there is no alignment with the U.S. on targets. As telegraphed by the Prime Minister last month, Canada is striking out on its own save for the important caveat of oil and gas sector regulations jointly with the United States.

Second, the economic assumptions underneath the target show Canada expects – or at least wants to say – that oil prices will be lower so emissions will be lower. That shaves some of the gap off at the outset, relative to previous forecasts.

Third, there is still substantial banking on provincial actions to carry most of the load. With no real new measures in the window under federal jurisdiction (with oil and gas still excluded) then declining emissions domestically are mostly going to come from provincial measures.

Fourth, new accounting rules for LULUCF (land use) gives a positive and not insubstantial edge to reducing Canadian emissions without taking additional measures.

Fifth, and most interestingly, the federal government is recognizing the value of international carbon offsets to compensate for a lack of domestic emission reductions; in this case, from the oil and gas sector.  This is a sharp, and practical turnabout from Ottawa’s previous position that such credits were essentially ‘hot air’.

Having set a new 2030 target, the big question becomes ‘Can we actually achieve it?”

Canada’s track record on climate targets is dismal on all fronts. From Kyoto under the Liberals to Turning the Corner, then Copenhagen, and now Paris under the Conservatives, there has been no sustained effort by successive governments to put measures in place to achieve these targets. Only the provinces – and not all of them – have consistently set and sought to meet their climate targets.  But again, there has been a consistent gap between political aspirations and policy will.

Could this new 2030 target be different? Yes – with one big reason: offsets.

Based on these elements, we anticipate about 240 Mt of compliance is available through domestic reductions, structural changes related to oil prices and LULUCF accounting rules.  The remaining gap to the target would then be sourced internationally as credits and offsets, or with new yet to be determined policy.  This is a departure from previous ‘hot air’ labels the federal government gave international offsets but can act as a much needed insurance policy in reducing the economic costs of emissions from Canadian actions alone.

We note however, that the policy stringency required to bend Canada’s emission down to 540 Mt in just 15 years, even accounting for structural change and accounting reductions, is significant and beyond carbon costs contemplated to date by any Canadian jurisdiction.

The chart below provides our view of the main elements of the INDC plan, as well as our forecast of Canada’s GHGs relative to the 2030 target, and the possible reductions in the plan.

What’s the overall conclusion?

Canada is proposing – again – another ambitious climate target with some welcome new federal measures to meet it. It relies significantly on shifts in economic growth away from oil sands emissions, land use accounting measures, and offsets to fill the gap by 2030 – beyond what is already expected from existing federal and provincial measures. As for oil sands, waiting for the U.S. remains the policy. Still, with the movement to international offsets, Canada has introduced a safety valve for the cost neurosis that has plagued our climate policy for decades.  This development alone may make Canada’s new climate approach less of a plan too far.

Originally posted: David McLaughlin and Dave Sawyer

http://www.enviroeconomics.org/#!blog/c19sr

May 15, 2015

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