Government strives for new approach to energy: will it work this time?

June 2, 2016


Canadian governments need the right policy mix to encourage consumers to use less carbon.

Once again, Canada has made a bold commitment to tackle climate change by reducing greenhouse gas (GHG) emissions. At the COP21 gathering in Paris late last year, the new Liberal government said it would reduce GHGs by 30 per cent from 2005 levels by 2030.

Such commitments are not new. The previous Conservative government had a similar GHG reduction target, and Liberal governments before that also pledged to bring down emissions, none of which were met.

Could COP21 be a turning point? Anthony Hobley, CEO of the UK-basedCarbon Tracker Initiative, believes it is.

“This is a new kind of inclusive global agreement providing a framework for action. It sends a strong signal that will accelerate the low-carbon transition that is already underway,” he said after the conference.

Mr. Hobley went even further, pre- dicting that the necessary carbon budget to deliver on the temperature reduction commitments “means the fossil fuel era is well and truly over.”

Kenneth Green, senior director of natural resource studies at the Fraser Institute, is a bit more skeptical about the COP21 targets.

“As I’ve observed over the years, politicians can rarely resist the urge to set ‘aspirational’ targets that are almost completely divorced from reality when it comes to being able to reach the targets,” he says. “We’ve seen this over and over again, with targets for the adoption of electric vehicles, targets for increased ridership on mass transit, targets for improving home energy ef- ficiency, and now, targets for reducing greenhouse gas emissions.”

“Consumers will become irritated at paying for the development of someone else’s products and services with what will in effect be a tax.” Jason Langrish is president of the Energy Roundtable

Jason Langrish, president of the Energy Roundtable, a private-sector forum launched in 2004 to help define the Canadian energy sector’s role in domestic affairs and international oil and gas markets, says it’s hard to say at this stage what it’s going to take for the commitments to be met this time.

“There certainly seems to be a political commitment supported by a consensus that climate change is a real problem that is getting worse and that something needs to be done,” he says. “Internationally, only time will tell if countries such as China, India and the U.S. can be brought into a binding treaty to reduce GHGs – some of this would depend on presidential support and congressional approval, for example. So if Trump becomes president, don’t count on it.”

In Canada, Mr. Langrish hopes that the federal government and the prov- inces can agree on a joint approach to cut GHG emissions. If not, the federal government may be forced to establish a minimum federal price for carbon.

He believes that the most important thing that government can do is pro- vide a predictable, long-termregulatory framework in which the clean tech industry can operate.

“Part of this framework could be a revenue neutral carbon tax, with the proceeds being used to help develop infrastructure, including via tax credits, for clean technologies that reduce GHGs,” says Mr. Langrish.

But if it becomes a game of the government using the funds to pick winners and throwing money at those industries, then this approach is un- likely to work, he adds.

Dr. Green says carbon tax is a complicated issue.

“Sure, the government can fine people for generating greenhouse gas emissions, and use those fines to subsidize lower-carbon forms of energy, and in theory, cut greenhouse gas emissions. But the question is, ‘at what cost, and to what benefit?’,” he says.

Forcing energy generators to switch from low-cost energy such as natural gas to higher-cost wind or solar energy will increase the cost of everything in the economy, he adds.

Mr. Langrish says governments will need to be careful about taxing people and industries for their carbon use and then providing those revenues to entirely different industries.

“Consumers will become irritated at paying for the development of someone else’s products and services with what will in effect be a tax. An important feature of decarbonization will be keeping the public and industry onside with the government’s plans,” he says.

Canada’s burgeoning clean tech sector is often held up as a beacon for the future and a sure way to transition from fossil fuels as a mainstay of Canada’s economy. According to Analytica Advisors, an Ottawa-basedcompany that monitors and reports on Canada’s expanding clean technol- ogy sector, the sector now employs over 50,000 people, and the Toronto Stock Exchange hosts more clean tech companies than any other country in the world. But can this sector really challenge oil and gas?

“Not in the near future, but looking out say 20-40 years, it is not only pos- sible, but likely,” says Mr. Langrish. “The oil and gas sector is still very large and employs a lot of people and generates a lot of economic activity. The clean tech sector is certainly grow- ing, but I would think that a clearer long-term regulatory framework is required that makes clean tech invest- ment more scalable.”

For example, he adds, this would include a predictable price on carbon, long-term commitments to funding clean tech development, and the advancement of key technologies and their infrastructure, such as clean energy storage and green vehicles.

Dr. Green says clean tech jobs are almost always dependent on govern- ment subsidies or mandates, many of which turn out to be unsustainable.

“Studies that have looked at ‘green jobs,’ routinely show that for every job created, the government has to divert so much money from the general economy that more jobs are either destroyed or not created in the economy as a whole,” he adds.

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