Carbon capers

There are powerful reasons for the Harper government to wait and see what climate change legislation emerges from Washington before embarking on its own. Moving too boldly to put a price on carbon could disadvantage Canadian industry relative to American competitors, as the Prime Minister has pointed out. Moving too timidly could one day trigger taxes against Canadian exports under proposed U.S. legislation that would penalize countries whose carbon regimes are not “at least as stringent as” America’s.

As a result, the Canadian government has been closely monitoring the progress of climate change legislation and regulatory initiatives in the United States with an eye to copying whatever they turn out to be, an approach dubbed “harmonization.” But watching the U.S. Congress wrangle with climate change is enough to leave anyone cross-eyed.

Since Barack Obama took office promising to make climate change a policy priority, the various pieces of the U.S. law-making machinery have been spinning like so many windmills. So far they have mostly managed to create a lot of uncertainty and hot air. After much arm-twisting, horse-trading, and grandstanding, in June 2009 the House of Representatives passed a cap-and-trade bill that would limit emissions across most of the economy. But the failure this week to get even modest energy legislation through the Senate demonstrated that cap and trade can’t survive the buzz saw of Republican opposition.

But that doesn’t mean case closed on climate. The Obama administration has a Plan B to regulate carbon emissions without Congress—that is, if a cavalcade of lawsuits doesn’t derail it. And there are ongoing efforts by individual states to restrict carbon emissions. The emerging patchwork approach could turn out to be enough to get American emissions down, but as a policy model for Canada, it’s less than a perfect fit.

The Canadian government has harmonized its emissions reduction target with the American commitment of cutting emissions by 17 per cent from 2005 levels by 2020. But the various approaches considered so far by American lawmakers are unlikely to lead Canada to meet that goal, even if they pass through Congress—which so far looks unlikely. It took almost a year after the House legislation passed for the U.S. Senate to turn its attention to climate change. Finally, in May, Democratic Sen. John Kerry and Republican Joe Lieberman published draft legislation known as the American Power Act.

The proposal would have set national greenhouse-gas emission targets, and established a wide cap-and-trade system that would cover 85 per cent of emissions in the U.S.—including electricity, transportation, buildings and industry—with the notable exception of agriculture. It included a carbon pricing system, opportunities for emitters to buy carbon “offsets,” as well as the power to impose tariffs against products from countries with weak carbon regulations. It also included special rules for energy-intensive and trade-exposed sectors.

If it were to become law, it would be broader than the federal emissions-trading approaches proposed in Canada, which covered only heavy industry. And while both the House and Senate legislation made exceptions for trade-exposed manufacturing sectors, they did not exempt the oil and gas sector—something the Canadian government has considered. An analysis of the proposed law by the Pembina Institute, an Alberta-based environmental think tank, concluded that if Canada complied with the American Power Act, it would achieve its 2020 targets only if it adopted a higher price on emissions than the U.S. legislation set out because of the very rapid projected growth in the oil sands sector. So much for competitiveness.

As it happened, the act was quickly shelved. Due to Republican opposition and resistance from Democrats from coal-producing states, the bill could not draw the necessary 60 votes to overcome a Republican filibuster. Discussion then turned this summer to a more modest approach, such as a bill mandating emissions reductions for electrical utilities, creating a cap-and-trade system for coal-fired plants only, or at the very least imposing requirements that some portion of their energy come from renewable sources.

But an electricity-only approach would translate into relatively smaller emissions reductions in Canada than in the U.S., and would be insufficient to reach Canada’s 2020 targets. The reason is that American utilities rely to a much greater extent on greenhouse-gas emitting coal than do those in Canada—which uses relatively more natural gas and hydroelectricity.

Coal-fired power currently accounts for 13 per cent of Canada’s emissions and is projected to fall to seven per cent by 2020—a drop of 48 per cent in terms of contribution to Canada’s total greenhouse gas emissions, according to Pembina. By comparison, coal-fired power accounts for 28 per cent of U.S. emissions and, without a policy change, is projected to rise to 30 per cent by 2020. As a result, the U.S. would be able to wring more overall emission reductions by focusing solely on coal-powered electrical plants than could Canada. Here, most of the growth in emissions is projected to come from the growth in oil sands production, but a policy focused on electrical utilities would not address those emissions.

Finally, on July 27, when the Democratic leader in the Senate, Harry Reid, introduced a long-awaited, much-anticipated energy bill that he said he wanted passed before the Senate’s August recess, it was even more modest than expected. There were no limits on utilities, and no requirements for renewable energy. Instead, the US$15-billion bill offered $5 billion in rebates for energy efficiency retrofits in homes, $3.8 billion to encourage the use of natural-gas-powered trucks, and offered funding to study electric cars. In addition, the bill would have lifted a $75-million liability cap on companies that perform offshore drilling, and would apply retroactively to BP. The cap proviso set off objections from Republicans, who said it would kill jobs by pushing all but the largest oil conglomerates from drilling in the Gulf of Mexico. On Tuesday, Reid gave up trying to pass the bill before the August recess, and said he’d try again in the fall.

Trying to save face with supporters who had expected Obama to bring in cap and trade, White House spokesman Robert Gibbs suggested that if Reid’s modest energy bill passed, cap and trade could be inserted when the House and Senate bills are reconciled in a negotiation known as “conference.” But with November elections coming up, few people are now holding their breath for climate legislation this year. “That has the same odds as getting dealt a royal flush in poker—although it is possible, it is very unlikely,” says Daniel J. Weiss, director of climate strategy at the Center for American Progress, a liberal Washington think tank. “The U.S. Senate is unlikely to act on global warming because of a wall of opposition from Republican senators.” Passing legislation after the elections, before new lawmakers take their seats in January, is also unlikely. “Lame-duck sessions tend to be nasty, brutish and short,” Weiss adds. “Whichever party is going to be gaining seats has little incentive to co-operate.”

In the absence of congressional action, Obama has a fallback: the Environmental Protection Agency is preparing to regulate carbon. The regulatory approach is no one’s favourite way to proceed—it’s less flexible than a cap-and-trade method, does not cover the entire economy, and is wrought with legal uncertainty. In 2007, the U.S. Supreme Court ruled that the EPA had the authority to regulate greenhouse gases, leading to a legislative effort to strip the agency of this authority. That was narrowly defeated in the Senate in June, but Republican Sen. Lisa Murkowski, who led the fight, is one of several lawmakers pressing to delay the EPA exercising its new power for two years. Lawsuits challenging the EPA have also been launched, by industry groups including steel manufacturers, the American Farm Bureau Federation, the National Mining Association, and the U.S. Chamber of Commerce.

For now, though, the EPA has said it will begin the process of dealing with greenhouse gases in January. Because the Clean Air Act’s limits on air pollutants apply to a wide swath of the U.S. economy, the EPA has issued a “tailoring rule” that, in an effort to avoid regulating minor emitters such as small businesses, would limit its greenhouse gas regulations to only the biggest emitters, such as large factories and power plants. The details will take several years to implement; first, at the beginning of the year, the agency will begin setting the emission limits for individual industries, such as coal-fired electrical plants and the steel industry.

Individual states will then be required to specify what cleanup technologies must be instituted by each emitter on a case-by-case basis. Weiss expects a slow process—it could be 2015 before such technologies are in place. And lawsuits could delay the whole process.

As a model for Canada, EPA-style regulations could also fall short of achieving our targets, said Danielle Droitsch, U.S. policy director for Pembina. “It’s totally possible that this rule would not go after enough of Canada’s emitters—we may need our threshold to be lower.” So far, Ottawa is watching and waiting for more details from the EPA. But if Canada intends to meet its stated targets, says Droitsch, who has analyzed the many U.S. climate policies for Pembina, “We need a made-in-Canada approach.”