Thomas Mulcair, the staples thesis and cap-and-trade

The NDP leader lays out his vision for resource development

In an essay for Policy Options, Thomas Mulcair lays out his vision for resource development.

Within a framework of sustainable development — including a cap-and-trade system and thorough environmental assessments — New Democrats would prioritize our own energy security and with it the creation of high-paying, value-added jobs, refining and upgrading our own natural resources right here in Canada — just as other resource-rich developed nations like Norway already have.

With unused refining capacity in eastern Canada already available, increasing west-east capacity is, in fact, a win-win-win — better prices for producers (and higher royalties for provinces), more jobs here at home and greater energy security for all Canadians. Shouldn’t that be Canada’s top priority for natural resource development?

As we move to seize these opportunities at home, we must also foster the international trade and foreign investment relationships that will ensure we have the capacity to meet them. In the past two years alone, state-owned Chinese companies like PetroChina and CNOOC have invested more than $25 billion in the Canadian oil and gas sector. That trend is expected only to grow.

New Democrats support breaking down trade barriers, lowering tariffs and reducing protectionism. We believe that government has a role to play in creating the predictability and clarity that potential investors count on. But we also believe that our government must stand first and foremost for Canadian interests, rather than ideological purity.

Mr. Mulcair actually mentions cap-and-trade twice, in the first reference he describes the NDP proposal as “a comprehensive upstream cap-and-trade system.”

A couple weeks ago, I noted the problems with the European carbon market and some questions about the future of carbon-pricing in Canada. I then sent those questions around to a few people. Here is a response from PJ Partington and Clare Demerse with the Pembina Institute.

While it’s frustrating that Europe’s politicians haven’t yet been able to find a way to move ahead, the argument that the EU ETS’s challenges mean cap-and-trade is unworkable misses the mark. As a PricewaterhouseCoopers analyst put it, “Emissions trading can be a very effective policy tool to drive down emissions, but only if it is backed by political commitment to action.” It’s true that the EU takes climate change seriously, but its internal politics are very complicated and not always constructive (as we’ve seen on a few other EU issues recently!).

The major reason why we’ve seen prices collapse is that the system’s targets weren’t tough enough. Governments gave away too many free allowances, which left the system vulnerable to oversupply when companies found cheaper ways to cut emissions and when the recent recession lowered demand.

Aaron, you’re right that governments that propose cap-and-trade systems going forward should explain how they’ll avoid the shortcomings of Europe’s approach (and to be fair, this isn’t the first time the EU system’s price has collapsed, so that was already a reasonable question to ask before this week’s events.) In my view, the key lesson governments can draw from Europe’s experience is that although many in industry will lobby hard against a system before it goes into place, once it’s up and running companies invariably find ways to meet its requirements at far lower costs than they predicted upfront. So governments should design new systems to hit their targets, not to placate industry’s worries.

Here are two points that seem to be missed in the Bryan Walsh analysis you cite:

Firstly, it’s not a cut-and-dry economics vs. environment issue, given many companies (including fossil fuel companies like Shell and Statoil) actually supported proposals for a higher price in the EU’s system. While that sounds a bit shocking in the Canadian context, the reality is that businesses that invest in cleaner technologies benefit from a stronger and more predictable price signal in the EU’s carbon market. Shell’s Climate Advisor listed “Market Confidence” at the top of his list of reasons the Members of the European Parliament should support the backloading proposal.

Secondly, there are good examples where the lessons learned by Europe have already been applied in designing better carbon pricing systems, particularly by setting pricing floors in trading systems like California’s and Québec’s. Faced with the same oversupply issue as Europe, the nine states in the U.S. Northeast’s Regional Greenhouse Gas Initiative (RGGI) cap-and-trade program recently agreed to lower their 2014 emissions cap by 45 per cent.

Other jurisdictions continue to move ahead. In the past year, Australia has implemented its carbon pricing system, Norway has doubled its carbon tax on the petroleum sector and several emerging economies announced plans to implement carbon pricing by 2015. Many of these are still fairly tentative first steps (Norway is the exception to that rule), but they demonstrate that carbon pricing continues to have momentum in many parts of the globe.

Implications for Canada

As we’ve seen again and again with the social license and market access issues facing Canada’s oilsands, environment and economy are linked, not opposed. Increasingly, weak climate policy can be seen as a competitive disadvantage.

A national carbon pricing approach would be the most economically efficient way to curb emissions in Canada, but there are a number of reasons why we’ll likely continue to see a patchwork of provincial policies — not least that provincial governments are interested in collecting the revenues that carbon pricing generates. One positive aspect of this patchwork effect is that provinces can be the laboratories for policies that later go national. The big question for Ottawa then becomes how the federal government ensures that provincial efforts add up to hit the national target that Ottawa has adopted.

One further wrinkle is that federal and provincial systems can co-exist, just as carbon tax and cap-and-trade systems can co-exist, so we shouldn’t assume that having a federal system would be the end of provincial efforts.

These questions apply the government’s regulatory plans as much as the opposition’s carbon pricing proposals. How will the government square its sector-by-sector regulatory approach with emerging provincial carbon pricing systems? How do we determine if an end-of-life performance standard for coal power is equivalent to an industry-wide trading system like Alberta’s, for example, or to a carbon tax like B.C’s? I expect those kinds of questions are going to get more and more attention in the coming months.