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September 30, 2020 | Consumers Will Shoulder Cost of Deferring Workable Climate Policy

Stewart Muir is founder and executive director of the Resource Works Society, a Vancouver-based group open to participation by British Columbians from all walks of life who are concerned about their future economic opportunities. He is an author, journalist and historian with experience on three continents including a financial editor of The Vancouver Sun responsible for mining and markets coverage. Since Resource Works was established in 2014, the group has gained international recognition for its practical approach to the public challenges of responsible natural resource development and use.

Slapping the word “clean” on a policy is meant to be an instant badge of its miraculous environmental effect. That sparkle is wearing off: more appropriate terms include costly, clunky and counterproductive. Stewart Muir looks at the situation.

The federal Clean Fuel Standard (CFS) is the latest case in point, yet policymakers are so far refusing to consider workable alternatives.

Because what could be better than clean? Other alternatives are…unclean, of course. And who would want to waste time on that? As a substitute for thinking or honest discussion, it must be said that the clean mantra has proven to be a durable construct. This is all the more reason to question what it is really meant by the term. On closer examination the picture is messy, to say the least.

The CFS might as well be called Carbon Tax Max as it means $200 per tonne on emissions that major Canadian employers insist do not apply to international trade competitors.

Ottawa has already heard from numerous organizations including the Chemical Industry Association, Canadian Chamber of Commerce and Canadian Energy Research Institute.

CERI, in a 2019 report Economic And Emissions Impacts Of Fuel Decarbonization, put costs of the carbon tax and Clean Fuel Standard at a yearly average $1,395 per household by 2030, reported Parliamentary investigative news site Blacklock’s Reporter on Sept. 30, 2020.

The cost of home heating would rise an average sixty percent under new green fuel regulations, said Blacklock’s citing new research by advocacy group Canadians for Affordable Energy.

“Homeowners are completely oblivious to what is happening because most people are worried about the recession and pandemic and what’s happening next week, let alone what will happen in 2022,” said Dan McTeague, the organization’s president. “We have compelling research indicating this is bad policy.”

 

The federal environment minister apparently isn’t interested in the arguments, with Jonathan Wilkinson quoted calling the CFS “an important part of the climate plan” on which “we intend to move forward.”

How much longer will consumers and industry tolerate the double-talk, increased costs and declining competitiveness? That remains to be seen.

The CFS would mandate a doubling of renewable energy in all fuels used in Canada including natural gas for home heating. Regulations would result in “a sixty percent increase in the cost of natural gas”, said Affordable Energy’s report, Assessment Of The Proposed Canada-Wide Clean Fuel Standard.

There is plenty evidence to show that the CFS is the wrong approach to take because it tilts the playing field against Canada’s large industrial employers. This will result in large-scale employment loss with no net benefit for the thing everyone agrees requires action: the global climate crisis.

Perhaps the mindset at work is that Canada has to adopt draconian measures as an example for others to follow, when what really happens in practice is we become an example of poor practice that confirms for other countries that more market-friendly paths are the real answer.

That’s certainly what we’ve seen in the United States. Rather than adopt the example of British Columbia’s pioneering carbon tax from 2008, the United States has pursued a market mechanism, the 45Q set of tax incentives, that constructs a positive path to stimulate investment, rather than the Prohibition mindset that seems to limit the imaginations of the bureaucracy north of the 49th Parallel.

45Q provides large carbon credit incentives for carbon dioxide stored permanently underground but not used commercially and for use in enhanced oil-recovery operations (EOR) and in other commercial uses (US$35 per tonne).

California’s has the Low-Carbon Fuel Standard (notice they avoid that unnecessarily emotional and increasingly meaningless word “clean”), an offset credit for direct air capture (DAC).

Choosing to accelerate innovation in these highly necessary technologies would serve as a smart, forward-thinking choice for Canada’s economic recovery and help ensure that high-potential Canadian industries are kept competitive and productive as we move towards a low-emissions economy.

A market-oriented mechanism to reward successful deployment of negative emissions and carbon capture, usage and storage (CCUS) technologies would spur private-sector investment and lead to climate-relevant outcomes with potential wide-scale applications to oil and gas, power production, cement, steelmaking, pulp and paper and more. The sector has potential to create high-paying jobs, drive economic activity and advance export of high-value, low-emissions hydrocarbon products and technologies.

The recent Task Force for Real Jobs, Real Recovery report took a practical approach to the situation. Advisors determined that for Canada to become a competitive jurisdiction for CCUS and negative emissions technologies (NETs), government must explore ways to lower the costs of capital investment.

The task force observed that this can broadly be accomplished in two ways: first, by lowering costs through tax credits by using accelerated depreciation; and second, by providing revenue enhancements, such as production tax credits, contracts for differences or sufficiently long and stable electricity guaranteed energy purchase agreements, to cover the cost gap.

There is already a successful example to follow.

With a strong stated focus on bolstering industrial competitiveness, the United States re-formulated IRS credits in 2018, triggering construction of 17 additional CCUS facilities in the country, adding to the existing 10 facilities and making the United States the world leader in CCUS.

At this point in time it ought to be clear that carbon pricing alone will not necessarily spur the required innovation. Nor will CFS offset credits for CCUS without a guaranteed price floor. The task force found that a CFS offset credit may be too volatile and is likely not durable across election cycles. Result: “Without credit price stability and predictability, the private sector will be unable to make large capital investments in CCUS.”

The Real Jobs analysts point out that Canada is distinct as an energy and resource commodity producer for operating under a carbon price. Most other global producers do not.

“Even if accomplished through a higher carbon price or CFS mechanisms, potential Canadian industrial users of CCUS or NETs would be at a significant competitive disadvantage,” authors wrote. “Given the considerable need for this innovation and the inability of disincentives alone to spur investment, the federal government should provide a Canadian alternative to the United States’ 45Q incentives.”

The CFS isn’t ready for prime time. More effort is needed to ensure that it helps rather than harms Canadian interests while also stimulating international climate competitiveness. Putting in the hard work up front is infinitely preferrable to a do-over down the road.

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September 30th, 2020

Posted In: Resource Works

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