Economic analysis

Carving up Canada’s climate change burden

Who will take responsibility for reducing GHGs and what is the best way to share that responsibility among regions?
Paul Boothe and Felix-Antoine Boudreault
Climate Change Alta 20160103
Premier Rachel Notley, right, and Environment and Parks Minister Shannon Phillips look on after unveiling Alberta’s climate strategy in Edmonton, Alberta, on Sunday, November 22, 2015.Climate isn’t all that’s changing in Alberta.The province’s NDP government has arguably made bigger moves on global warming in six months than the previous Conservatives made in a generation. THE CANADIAN PRESS/Amber Bracken

The December trip to Paris for the UN climate conference was lots of fun for ministers. It felt great to be among the climate change good guys again. But now it’s February in Ottawa and reality is sinking in. They made a big promise in Paris and people are wondering how they are going to meet it. Or if, as with so many of our past climate change promises, Canada has neither the intention nor capacity to walk the talk.

The challenge facing Ministers is significant. The 2030 target is 524 Mt, a full 200 Mt below current (2013) levels. Canadian provinces have very different economies and endowments of natural resources and policies to reduce GHGs will be felt differently in different regions of the country. Who will take responsibility for reducing GHGs and what is the best way to share that responsibility among regions?

Meeting our 2030 GHG target means fundamentally restructuring our society to emit less carbon. Individuals, businesses and governments will have to change their ways if we are to become a low-carbon society. If the challenge of transforming our society is not complex enough, we also have to solve the governance problem because in the Canadian federation, provinces and the federal government share responsibility for safeguarding the environment.

In our latest study we look at sharing the burden for climate change action. We begin with the two basic rationales for allocating responsibility among provinces: efficiency and equity. There is widespread agreement that a policy that prices carbon, i.e. a carbon tax or an auction-based cap and trade system, minimizes Canada’s overall economic burden of adjustment, although the economic impacts would differ substantially across provinces. An approach based on efficiency would begin with the national carbon price consistent with attaining Canada’s target level of emissions. Each province would be allocated the quantity of emissions they demanded at that price.

Equity, however, is a different matter. Like beauty, fairness is in the eye of the beholder and different concepts of equity can produce very different results. We look at two very different approaches to fairness. The first is an egalitarian approach, which would allocate to each province the share of Canada’s emissions target equal to its share of Canada’s population. Proponents of this approach would argue that it is consistent with all citizens having an equal claim on Canada’s carbon budget. The second is an historical approach which would allocate to each province the share of Canada’s emissions target equal to its current share of Canada’s total emissions. Proponents of this approach would argue that it is consistent with the provincial ownership of natural resources and reflects past investment decisions made in good faith.

In the following chart we use Canada’s 2020 target to illustrate the practical application of these different approaches to burden sharing. While we recognize there is little likelihood that Canada will meet its 2020 target of 622 Mt (about 100 Mt below current levels), choosing this benchmark has the benefit of all provinces having set a target for their emissions (except Manitoba for which its 2012 target is used as a proxy). Green bars correspond to provinces’ 2020 targets, Blue bars to the egalitarian approach, yellow bars to the historical approach and red bars to the Efficiency approach.

(Click for larger version.)

Boothe chart-Feb 18

Focusing on the four largest-emitting provinces (BC, Alberta, Ontario and Quebec) we see first that under the egalitarian approach Ontario, Quebec and BC all receive allocations greater than their announced 2020 targets. In contrast, Alberta’s allocation is substantially below its target. This result comes about, in part, because Alberta has both the largest emissions and smallest population of the four largest emitters, and because of the lack of ambition in the target set by the previous Alberta government.

Looking next at the historical approach, we see a closer alignment between allocations and provinces’ own targets. Interestingly, the Efficiency approach shows a similar pattern, despite the fact that it is based on a very different rationale.

What can we learn from this illustration? First, while BC, Ontario and Quebec would minimize their burden by supporting the egalitarian approach, we know that they have already set targets for emissions reductions that are much more ambitious and more closely aligned with the historical and Efficiency approaches. Alberta would clearly prefer the historical or Efficiency approaches over the egalitarian approach. Finally, with its interest in minimizing the overall cost of burden of adjustment, the federal government is most likely to prefer the Efficiency approach. This suggests that the federal government and four largest emitting provinces may have a lot in common when it comes to how to share the burden of meeting our GHG targets.

This is not to say that there is not hard bargaining ahead. What climate change actions will be chosen and how they will be implemented will be at least as challenging as sharing the burden of transforming to a low-carbon society. However, our illustration suggest that if there is a (political) will, there is room to agree on how to reasonably share the burden of reaching Canada’s 2030 target.

Paul Boothe is director and Felix-Antoine Boudreault is a fellow at the Lawrence National Centre for Policy and Management at Western University’s Ivey Business School. Both previously worked on climate change issues at Environment Canada.