Canada’s Conference Board Reports the Cost of a Cleaner Future

September 8, 2017 – This week The Conference Board of Canada issued a report that focused on greenhouse gas emission (GHG) reductions, looking at current and future policy, and economic implications. The principal author is Len Coad, Research Director, Public Policy for the Conference Board. His co-authors include Robyn Gibbard, Economist, Alicia Macdonald, Principal Economist, and Matthew Stewart, Director of National Forecasting and Analysis. Additional assistance in the drafting and writing of the report came from the Canadian Academy of Engineering.

When I think of The Conference Board of Canada I see a business-oriented, conservative body of independent thought focused on economic trends, organizational performance, with an occasional dip into public policy issues. What I don’t expect in a report written by this organization is what I read when I downloaded their study.

The Conference Board chose to look at three government policy measures and their impact on Canada between now and 2050. The first was the initiative by the federal government to price carbon, as well as the individual initiatives of Canada’s provinces and territories. The second was the effort to decarbonize our energy delivery system focusing on green investments in electrical power generation. And the third was public perception and buy-in to the policy makers programs and efforts to reduce GHGs.

Pricing Carbon

In 2018 there will be a national price on carbon. The Conference Board report assesses its economic impact by proposing three scenarios:

• A carbon price starting at $10 per ton in 2018 and progressing to $80 by 2025,
• A faster escalation of the carbon price to $150 per ton by 2025,
• An even faster escalation to $200 per ton by 2025.

In assessing each of these three The Conference Board concludes that because of carbon revenue recycling measures where the money collected is distributed back into the economy to those most impacted by a carbon levy, the impact on real Gross Domestic Product (GDP) is expected to be minimal. The higher the carbon levy states the report, the weaker will be household income and spending. Trade and business investment may also be impacted. The offset will be public sector spending on the infrastructure needed to address the transition to lower GHGs. The Canadian dollar, concludes the report, is expected to marginally decline in value against world currencies which will help Canadian exporters.

The Conference Board estimates that in 2018 alone the $10 per ton carbon levy will raise $5.8 billion. By 2025 the $80 levy will yield $48.3 billion. In terms of emission reductions, in 2025 the report expects on a small drop in GHGs. That’s because of the latency in eliminating fossil-fuel energy generating capacity in the country. The report states, “prematurely retiring the fossil fuel-powered facilities will have a negative impact on GDP and jobs.” The direct impact is expected by 2031 to amount to a GDP reduction of $5.0 billion annually, and an indirect impact on jobs of $2.2 billion. This is the downside of the carbon levy. Not all provinces and territories will be equally impacted. For example, removing coal-fueled power plants in Alberta will negatively impact that province with a loss of 20,000 jobs. The Conference Board anticipates that the needed energy replacement infrastructure would come from green energy alternatives which would create an equal if not greater number of jobs than those lost. But there is no guarantee that those jobs will be in Alberta.

Green Investments

The Conference Board sees the 2030, 30% reduction in GHGs, as a starting point for the country, and a 60% reduction by 2050 as the trajectory Canada needs to follow to meet our global commitment to combat warming of the planet. What will be the cost?

The report paints two scenarios:

• A 30% reduction below 1990 emission levels will require a $2 trillion investment of which $1.7 trillion will be used to build a new national electric power generation infrastructure. The balance will be invested in biofuels, agriculture, and industry and commerce.
• A 60% reduction below 1990 emission levels will require a $3.4 trillion investment with half going to transportation and the balance split among biofuels, new power plants, and commerce.

The report further states that Canada may not have the investment capacity to achieve the targeted amounts and hence, the desired outcomes, that the country is already approaching its economic capacity with no additional funds or labour pool capable of the actions needed to meet the objectives. As such green technologies may consume such a sizable portion of total economic investment, that little will be left in the way of opportunity to grow other sectors. There will be economic dislocation as a result. Canadians will need to learn to roll with the punches as their lives and businesses become fundamentally restructured in the pursuit of a low-carbon economic future. But it is easier to roll with the punches if you know they are coming.

Policy is Critical to Achieving a Low-Carbon Future

The biggest challenge to the government in transitioning to a low-carbon future is managing the money. Governments in Canada will be collecting a carbon levy but at the same time will be returning the money to the economy to keep Canadians at work and in their homes. The likely scenario is governments on all levels accumulating significant debt over the medium and long term. Debt servicing costs could lead to policy decisions where the government causes an economic and environmental crisis either by raising taxes that negatively impact the majority of Canadians’ means of getting by or where the government cuts back on spending and the needed green technology infrastructure programs are never sufficiently funded.

All Canadians understand that to reduce Canada’s GHG contributions to global emissions will require phasing out fossil fuels and creating green, renewable electrical power generating alternatives. All Canadians know that the cars, buses, trucks, and trains we rely on will have to become net-zero carbon emitters. That’s the only way Canada can get to a point where GHG emissions drop by 60% in 2050.

That means well-constructed and funded programs designed to minimize economic dislocation on the way to a low carbon future. For policy makers, this requires a clear articulation of the transformation required “and what these changes will mean” for Canadians in their everyday lives. Communications will be as important as programs to create “motivating broad-based support for the transition.” The report further states, “if Canadians do not understand and embrace this change, the policy is doomed to fail.”

The report, therefore, calls for policymakers to achieve the following:

• Create end-user acceptance. That means Canadian households agree to achieve personal carbon reductions, replacing natural gas and oil heating of their home with green electricity, or getting rid of the gasoline-powered automobile and replacing it with a zero-emission vehicle.
• Gain acceptance of large-scale green power projects. This requires Canadians to park NIMBYism at the door when consulted about new infrastructure that could create disruption in localities leading to discomfort for some.
• Create a more efficient environmental assessment process. Where current environmental assessment processes have thwarted the rapid expansion of pipelines to support the expansion of GHG emitting oil and gas infrastructure and production, it may become necessary to recognize the lesser of two evils in advancing green energy infrastructure. (Note that the report specifically mentions environmentalists and Indigenous peoples which, in my opinion, is an unfair attribution. The onus should be on government to effectively communicate the who, what, why, where and how of any new project.)
• Get regulatory acceptance of the need for investment and cost recovery. If Canada is to mine capital from of private partners to achieve the level of investment needed for a successful transition to a low-carbon future, it will need to provide assurances that investments will produce at minimum cost recovery for those taking the risk.

Two Final Notes

The report states briefly that it has not taken into consideration disruptive and innovative new technologies not deemed to be commercially viable at the time of the writing. For example, the report doesn’t mention technologies such as nuclear fusion reactors as a source of carbon-free green energy. Nor does the report describe micro-grid clusters and energy storage technology. Nor does it discuss carbon-capture technologies currently being developed in Canada that could speed up GHG reductions.

The report also notes the elephant in the room but doesn’t consider its economic impact other than in a general statement. That elephant is the current United States government which if it continues down the current path Donald Trump is taking it will mean Canada will be next to a regime that is abandoning its global climate change and GHG reduction commitments, abandoning North American standards on vehicle emissions, and opening up offshore and onshore GHG producing energy development without thought to overall global impacts.