Prime Minister Justin Trudeau speaks with Minister of Environment and Climate Change Steven Guilbeault during the United Nations Secretary General’s Climate Ambition Summit at the United Nations, in New York on Sept. 20, 2023.Adrian Wyld/The Canadian Press
Chris Bataille is an adjunct research fellow at the Columbia University Center on Global Energy Policy and the Canadian IPCC lead author of the WGIII Industry Chapter and Summary for Policymakers.
The essence of Canada is constant evolution, not revolution, and our climate policy should be no exception. It would be wise at this point to ask what is working, both technically and politically, and what isn’t.
The short answer is that carbon pricing works – but only if it is combined with complementary policies, is strong enough, perceived as fair and can survive our predictable swings in government. And that’s questionable right now.
Ottawa last fall carved out an exemption for home heating oil in its carbon tax. Critics have called it a ploy for votes, given the heavy use of heating oil instead of gas in the typically Liberal-voting Atlantic Canada. Calls for other exemptions soon followed, discrediting the whole carbon-pricing regime in the eyes of many.
That is why the federal government should be reconsidering where carbon pricing is critical, and where we should simply be regulating, as we do for vehicle purchases.
When I think of the economy, I think of millions of households and firms making equipment and operating choices every day, every year. What makes them choose to operate it faster, slower, longer, shorter, later or earlier? What makes them choose the non-emitting version if they have the chance?
Cost is one answer, which makes sense for generally profit-maximizing firms. But that ignores the fact that consumer choices are limited by what’s available, and that price is often not the sole criterion people consider when buying vehicles, heating and cooling systems, and appliances of all kinds. Familiarity, access to a fast and reliable repairs, what your neighbour thinks, bragging rights – all such factors matter just as much beyond a certain level.
This is part of the reason that Canada, and governments globally, have chosen to use performance-based regulations to facilitate the move to less-emitting and zero-emitting vehicles. Carbon pricing helps here with how people and firms choose and operate their vehicles, but regulation has also been necessary, along with a dash of upfront subsidy cash and funding for electric charging networks to get the market going. Given the recent political hullaballoo over the exception for heating oil, why don’t we do the same for household and commercial space heating?
Part of it is jurisdiction: building codes are provincial and municipal. The federal government does have some capacity to regulate appliances such as heating and cooling systems. They could mandate that, after a certain date, people and firms can only buy ultra-low emitting furnaces, which effectively means cold weather heat pumps for most situations. For added reliability and very cold weather performance heat pumps can be hybridized with natural gas, propane or liquefied petroleum gas.
Provinces could also ask for an equivalency agreement to fill the existing gas network with biomethane, or to operate a hydrogen network. Supplying enough biomethane or low carbon hydrogen at a reasonable cost would be very expensive and challenging, however, and heat pumps of various flavours are a ready-to-go technology.
While heat pumps use electricity to source most of their heat from the outside air or underground, like reverse refrigerators, they cost more upfront than natural gas furnaces. As with vehicles, the federal and provincial governments can offer subsidies and low interest loans repayable through household and commercial property taxes, and directly offer to install discounted ones for low-income households. If heat pump manufacturers knew this level of demand was guaranteed, one or more would likely set up shop here in Canada to avoid trade snarls, leading to a domestic industry and supply chain, with the jobs that go with it.
Where carbon pricing is truly necessary is in industrial uses, and it seems to be doing its job to that end as far as it goes. Also, the alternative decarbonization options aren’t as clearcut in industry, unlike for buildings and light personal and freight transport, so carbon pricing excels in this atmosphere of uncertainty. Firms can choose to pay the carbon price or figure out their own mitigation options.
Industrial carbon pricing isn’t strong enough as it currently is, however. The federal government has announced tightening of the standards, but that only means that most firms will be paying the full carbon price on approximately 75 per cent instead of 20 per cent of their emissions in 2050. Furthermore, the announced carbon price benchmark, whether applied by the feds or provinces, stops at $170 per tonne carbon dioxide equivalent in 2030, up from $65 per tonne today. Most studies of net-zero carbon energy systems indicate this needs to rise to at least $300 per tonne. This may sound like a lot, but it is only on the few remaining emissions there should be in 2050.
In the year ahead, Ottawa – including all federal parties – needs to think carefully on climate policy. Most of the world, including our largest trading partner, is moving to border carbon pricing of one sort or another. If we don’t keep pace, we may find ourselves on the wrong end of the global clean tech industrial revolution – buying, not selling.