Industrial carbon price more effective to reduce greenhouse gases than consumer policy, report says

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Canada’s carbon pricing system for heavy industrial emitters is by far the country’s most impactful policy for reducing greenhouse gas emissions, and roughly three times more effective than the more controversial carbon price paid by most consumers, according to new research being released on Thursday.

The finding is in a new report by the Canadian Climate Institute, a federally funded but independently run think tank and accountability body. It used modelling by the consultancy Navius Research Inc. to quantify the emissions cuts from each major national climate measure – information that the government has not itself provided publicly.

The report’s overall assessment is that existing and in-the-works climate policies should get Canada much of the way toward its goal of reducing national emissions at least 40 per cent from 2005 levels by 2030, but that to avoid falling short, Ottawa needs to increase stringency and address overlap between those measures that makes them less than the sum of their parts.

But the carbon pricing numbers are likely to attract the most notice, since they come amid the most heated debate about the consumer-facing levy since it was introduced last decade.

While Prime Minister Justin Trudeau continues to treat that policy as a backbone of his climate strategy, a majority of premiers have called for an annual April 1 consumer-price increase to be put off because of affordability concerns (despite most revenues being returned to taxpayers through rebates). And Conservative Leader Pierre Poilievre, whose party leads in opinion polls, has made scrapping the levy altogether one of his central pitches to voters.

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That dynamic has already led to a growing discussion among climate-policy advocates about whether to move on from the consumer-facing policy and focus efforts more on industry, for which the report – a copy of which was provided in advance to The Globe and Mail – offers fresh fodder.

In an interview, Climate Institute president Rick Smith stopped short of suggesting that focusing on the more effective of the two carbon pricing systems should mean abandoning the other one entirely. But he made clear where he thinks the new numbers point, as Ottawa seeks to meet its commitment of reducing national emissions.

“The debate around the consumer carbon price is sucking too much oxygen out of the room,” he said. “It’s just a fact that industrial carbon pricing is the most important contributor to carbon reduction across the country.”

The modelling comparing the two pricing systems and other policies is highly complex, in part because overlap between those measures makes it difficult to separate out their specific emissions reductions. As a result, the report shows a wide range of outcomes for each one, contingent on whether it’s treated as part of the existing package or in isolation.

Nevertheless, the gap between the two forms of carbon pricing is striking, across those ranges. (In both cases, the modelling assumes that prices go up as currently scheduled, and that there are no other major changes to the current policies.)

The report projects that, between 2025 and 2030, industrial pricing – which it calls “large emitter trading systems,” because the approach incentivizes companies to invest in decarbonization to earn tradeable credits – will be responsible for between 20 and 48 per cent of all emission reductions.

By contrast, it shows the consumer price accounting for 8 to 14 per cent over the same period.

That’s more than some other policies that were studied, including the Clean Fuel Regulations (0 to 4 per cent) – another controversial measure, meant to reduce the carbon intensity of transportation fuels consumed domestically.

But it’s behind not just the industrial price, but also Ottawa’s proposed emissions cap for the oil-and-gas sector, at 7 to 34 per cent, and its methane regulations for that same industry, at 1 to 24 per cent. (The especially wide ranges for those two policies are because they have extremely heavy overlap with each other.) And it’s not even much above planned regulations for landfills (7 per cent), which have attracted minimal public attention.

A caveat from the authors is that the report focuses only on emissions until the end of this decade, and some policies stand to have a bigger impact later. That applies to Ottawa’s planned sales mandate for zero-emissions vehicles (2 to 3 per cent before 2030), and proposed Clean Electricity Regulations, which were not modelled because their requirements would only take effect in 2035.

The report also notes that the value of measures such as tax credits for clean technologies is not fully represented by relatively modest emissions reduction projections, since they are as much about competing internationally for investment during a global shift toward a low-carbon economy.

As a whole, the report finds that policy measures implemented to date will prevent 226 megatonnes of emissions that would otherwise happen annually by 2030, but that even if other promised policies are fully implemented, the country will still be roughly 30 to 40 megatonnes above annual emissions targets by that date.

Among the best ways to close that gap, it suggests, is by further strengthening the industrial carbon pricing system already doing the most heavy lifting.

That could include increasing stringency in that system, which prices emissions only above certain thresholds in order to protect trade-exposed industries. The report notes that such protections may now be at odds with competitive interests, as Europe leads an international push toward applying tariffs on carbon-intensive imports from countries with lax regulations. And it points to tightening the thresholds as a way to also address policy overlap, in which other policies (such as tax credits) make it easier for companies to avoid reaching the level at which emissions are priced.

But more than prescribing policy solutions, the report’s primary purpose is being framed as helping cool down overheated national debate by adding missing context.

“The lack of credible estimates of the relative importance of different policies was hurting the climate discussion,” Mr. Smith said in the interview. “We hope these new numbers can move us forward in a more productive way.”