Carbon Policy and Emissions Targets

Courtesy of Stikeman Elliott. View original article here.

As we review the current status of Canadian carbon policy in the wake of the 2019 Election, it is clear that the concentration and focus of the federal government on carbon policy during its first term was significant, at least compared to any other area of policy. In particular, the government:

  • signed the Paris Accord;
  • negotiated the Pan-Canadian Framework with the provinces to introduce the concept of carbon pricing and to lay out a pathway to materially reduce the carbon intensity of the Canadian economy;
  • passed the Greenhouse Gas Pollution Pricing Act to ensure that some form of carbon pricing actually came into effect across the country targeting a gradual increase to $50/t by 2022;
  • prepared a long-term strategy to achieve deep-decarbonization by mid-century.

Some critics have suggested however that Canada’s carbon policy, and in particular its specific targets for future emissions reductions, are longer on aspiration than on likely achievement. There is some history behind that skepticism.

A central feature of every fresh Canadian carbon policy since the Kyoto Protocol is a grand vision accompanied by a stirring declaration of intent to act. However, any material actions have generally been deferred, only to be taken at some unspecified time in the future. This has resulted in relatively few reductions in the level of actual carbon emissions regardless of any declared goals or targets.

So, in 2005, the base year for calculating Canadian targets under the Paris Accord, carbon emissions were in the neighborhood of 732 Mt per annum. After more than a decade, the adoption of various ambitious targets for future emissions reductions and various government initiatives almost too numerous to count, carbon emissions in 2016 were still up at 704 Mt per annum – only a 4% reduction from the 2005 base year.

Now, in fairness, both population and economic growth meant that the overall carbon intensity of the Canadian economy declined materially over that period even if actual emissions did not. The objective of both national and global carbon policy, however, is to actually reduce carbon emissions per se – and on that front the rhetoric of Canada’s carbon policy has yet to be met by commensurate action.

Indeed, since the Kyoto Protocol was signed in 1997:

  • Canada has yet to meet any target it has set to reduce carbon emissions, including those under the Kyoto Protocol itself or the subsequent Copenhagen Agreement.
  • Canada will clearly miss its 2020 target under the Paris Accord which was set at 20% below the levels of the 2005 base year – or roughly 585 Mt Canada currently projects its 2020 carbon emissions could be closer to 700 Mt more or less – which would be in a range of 15% to 20% higher than the 2020 target.
  • Canada is not yet on track to meet its 2030 target under the Paris Accord, which was set at 30% below base year 2005 – or roughly 512 Mt. Canada currently projects its 2030 carbon emissions could plausibly be as high as 701 Mt. To be fair, with various additional measures that have been announced but not fully implemented, 2030 carbon emissions might possibly be lowered to 592 Mt – but even this would be roughly above the target for 2030.

See Environment Canada’s 2018 Emissions Projections

Emissions Targets and Willingness to Pay

There is a key structural reason for this disconnect between the traditional declaratory ambition of our carbon emissions goals and targets and the relative paucity of current and effective action to actually reduce emissions. In his landmark Lloyd’s of London speech in 2015 Mark Carney, the Governor of the Bank of England, identified “the tragedy of the [time] horizon” as a key issue that bedevils all carbon policy:

“The challenges currently posed by climate change pale in significance compared with what might come. The far-sighted amongst you are anticipating broader global impacts on property, migration and political stability, as well as food and water security. So why isn’t more being done to address it?…We don’t need an army of actuaries to tell us that the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors – imposing a cost on future generations that the current generation has no direct incentive to fix.”

Carney went on to note the specific mismatch between the time horizons of politicians and regulators and the multi-generational time horizon required to effectively limit carbon emissions. Specifically, he noted that the time horizons for actors with the power to set climate policy were attuned to the business cycle (2-3 years), the political cycle (4-5 years) and, at the far end, to mandates for assuring financial stability (10 years at most). Meanwhile the most consequential direct impacts from carbon emissions and climate change are likely to be felt over a period that starts roughly 20 years in the future and continues for decades, if not for a century or more thereafter.

Moreover, Carney said, the issue of the time horizon does not end there. He noted that the damage caused by carbon emissions was cumulative. So, from the perspective of optimal policy, societies might rationally be inclined to make significant expenditures now to avoid incurring even greater costs in the future. However politics, and specifically diverging inter-generational political interests, tend to constrain this policy approach.

All of these timing issues fundamentally shape the politics of carbon. At the present time, and for the immediately foreseeable future, many will feel a natural human inclination to resist making material and present sacrifices for benefits that will be realized, mostly by future generations, in the relatively distant future. It is only over time that the public’s willingness to pay is likely to materially increase as the visible costs of carbon emissions go up, as the consequences become more proximate and as a greater portion of the population can expect to be directly and adversely affected over their own lifetimes.

This is all reflected in current opinion polling and more general analyses of public attitudes to carbon policy. For example, the CBC summarized the results of a poll in the summer of 2019 about carbon emissions and climate change as follows:

“Canadians are deeply concerned about climate change and are willing to make adjustments in their lives to fight it – but for many people, paying as much as even a monthly Netflix subscription in extra taxes is not one of them…The findings point to a population that is both gravely concerned about the heating of the planet but largely unprepared to make significant sacrifices…”

Enough Canadians have at least some inchoate concern about carbon emissions and climate change so that limiting carbon emissions to some degree is now likely to be a permanent feature of the political landscape.

However, while support for limiting carbon emissions is broad it is also shallow, at least for now. Public willingness to make material payments or sacrifices appears to lag well behind any general intention to act.

Courtesy of Stikeman Elliott. View original article here.