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Striking a carbon balance

September 16th, 2015 · No Comments

Pick a plan, the real enemy is inaction

For me, there is very little doubt that carbon needs to be priced. The only question is what mechanism we use as a nation to price it for the most effective carbon reducing strategy. I had the fortune of hosting the “Why Should I Care?” forum on carbon pricing in August. The two guests debated the merits of the carbon tax, the cap and trade, and the fee and dividend systems.

The first time I ever recall a federal party actually proposing a carbon tax was in 2008 when then Liberal leader Stephane Dion brought forth the green shift. The idea was to put a dollar amount on carbon so that the consumer was hit where it hurt the most, in the wallet. The tax would act just like cigarette and alcohol taxes, it would discourage bad behaviour, and those who didn’t engage in it would save money by tax cuts in other areas. The disaster of that election pretty much ensures that no major party will include real climate mitigation measures into their platform for fear of voter retribution in the near future. However, I salute Dion’s courage for having had what I considered the greenest party platform in a western democracy. A carbon tax will send a price signal to producers. An adequate price signal in theory makes an otherwise more expensive, low carbon, option price competitive. The fear with this solution is that the price will be too low, not allowing biofuels and other alternative forms of energy to actually compete.

Fee and dividend is promoted federally by Green Party leader Elizabeth May. The idea here is that an incremental fee is imposed by government on companies emitting pollutants, with the fee increasing steadily each year until the point is reached where clean energy becomes cheaper to employ than fossil fuels. All the money collected through the fee system would be returned to Canadians on an equitable basis, regardless of a household’s carbon footprint, and assistance with increased costs would be passed along by the corporation paying the fees. Households with a large carbon footprint would feel the effects of the fee system, which will exceed the dividend return, thus incentivizing change. Conversely, a family reducing its carbon footprint to less than average will make money from the program, which also benefits from being predictable through employing increasingly higher carbon prices, thereby encouraging entrepreneurs and investors to focus on clean-energy options.

In a cap and trade system (as already adopted in California and Quebec), the government caps carbon emissions from large polluters by setting legal limits, which are lowered over time to reduce the amount of pollutants released into the atmosphere.

If a company is able to reduce its pollution easily and cheaply, it can end up with extra allowances which it can then sell to other companies – generating revenue in the process. The benefits of implementing this type of structure allows companies to plan well in advance as the cap on emissions is gradually and predictably lowered each year.

Additionally, while companies may exchange allowances between each other, the total number of allowances remains the same, thereby achieving hard limits on pollution emitted each year.

Each strategy has its benefits, but from the discussion we hosted, Brian Foody, CEO of Iogen Corporation, said it best. Which method we choose is irrelevant so long as carbon can be priced appropriately. There are advantages to adopting systems already put in place by other jurisdictions such as Europe and California, given how small the Canadian market is.

Regardless of the system, on election day I’m looking for a leader willing to do something!

Terri Chu is an engineer committed to practical environmentalism. This column is dedicated to helping the community reduce energy use, and help distinguish environmental truths from myths.

Send questions, comments, and ideas for future columns to Terri at terri.chu@whyshouldicare.ca.

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