EDITOR’S NOTE: Dr. Peter Tsigaris is a professor of economics at Thompson Rivers University.
By DR. PETER TSIGARIS
The Obama administration has taken a leadership role by endeavoring to cut carbon emissions. By 2030, the U.S. wants coal power plant emissions reduced 30 percent below 2005 levels. Targeting electrical power generated by burning coal in the U.S. makes sense. Emissions from burning coal account for the largest share of U.S. carbon emissions.
The mandate for a 30 per cent reduction will not be applied uniformly across the states. Instead, individual reductions targets for each state will be set by the U.S. Environmental Protection Agency (EPA).
The EPA will base the targets on the state’s energy mix and the actions taken by the state before the enforcement comes in effect. Each state will have until 2016 to devise a strategy for meeting the targets. The EPA regulations will come into effect for all states in 2020.
The new regulations will be met through a cap and trade system. A brief explanation as to how this market works is as follows:
The government issues carbon emission permits (allowances) to firms. The amount of permits issued adheres to the reduction target. Firms will then trade these permits among themselves. The idea is that the “cap” will allow the target to be met, while the “trade” part of the system will make it less costly for firms to meet the target.
Power plants that can reduce emissions at a lower cost will sell permits to firms that have a higher cost of reducing emissions. Demand and supply of permits effectively prices carbon emissions. For more information on cap and trade see: http://www.epa.gov/captrade/captrade-101.html
The cap and trade system creates an incentive for firms to switch to cleaner energy production. Ideally, firms will switch from coal to natural gas, move to renewable energy sources, and invest in nuclear power plants.
Likewise, consumers will use less coal powered energy. Furthermore, states have an incentive to start reducing emissions immediately since this proactive action will be rewarded by the regulatory authority.
What about Canada?
Our carbon emissions reduction target is 17 per cent below 2005 levels by 2020.This target is the same as that of the U.S. and was set at the Copenhagen conference in 2009. It is believed that the U.S will now hit this target, but will we?
In 2012, our total greenhouse gas (GHG) emissions were estimated to be 699 megatonnes (millions of tonnes, Mt). In 2005 we emitted 736 Mt. We are approximately 5 per cent below the 2005 level of emissions. Since 2010, GHGs have stabilized around the current level of 700 Mt.
Can we reach our carbon-reduction targets in the framework of our existing policies?
The answer is that with current measures alone, we cannot. Environment Canada is predicting that we will hit 734 Mt in 2020 if only current measures are in place. This means no reduction in GHG emissions in 2020 relative to 2005 levels.
According to Environment Canada, emission reductions will result from the regulation of coal- fired power plants, but there will be concurrent increases in oil and gas emissions (which currently account for 25 percent of GHGs emitted). The oil and gas emissions will offset the gains from the regulation of coal-burning power plants.
Emissions from transportation, buildings, emission intensive industries, agriculture and waste are predicted to increase by 25 Mt in total. However, Environment Canada is also speculating that forest land will act as a carbon sink offsetting the increase in the other sectors.
The current five per cent reduction is due to a number of factors including the slowdown of the economy resulting from the 2008 recession. Other factors are attributed to the federal and provincial initiatives. The federal government has instituted fuel efficiency vehicle regulations, renewable fuel content, and reductions in carbon dioxide emissions from coal-burning power generations (See http://ec.gc.ca/cc/default.asp?lang=En&n=E97B8AC8-1).
Provincial measure such as the phase-out of Ontario’s coal-fired power plants is a major contributor (See http://www.scientificamerican.com/article/ontario-phases-out-coal-fired-power/). The establishment of B.C.’s carbon tax, Quebec’s cap and trade system and carbon tax, Nova Scotia’s limits on GHG emissions arising from electric power generation plants, and Alberta’s specified gas emitters regulations have played and will continue to play a role to stabilize GHGs to 2005 levels.
But current measures are not sufficient to reduce GHGs, which is the objective. Canada will need additional measures to reduce GHGs by approximately 90 Mt from current levels in order to hit the target.
We have six more years to accomplish this reduction. It took us nine years to reduce GHGs by about 40 Mt. We need to reduce emissions by more than double that amount in fewer years. These reductions have to be realized with a growing population and a growing economy.
The task is not easy and requires strong federal action. If we are to hit the target, the oil and gas sector cannot be excluded from strict GHG regulations. The U.S. is taking a leadership role and is on track to hit their target, while we are lagging behind.
The White House realizes that climate change is a serious issue with severe consequences if not addressed now (http://www.whitehouse.gov/climate-change). We need a national policy to contribute towards combating climate change.
Environment Canada, 2013, Canada’s Emissions Trends, October, Accessed at http://www.ec.gc.ca/ges-ghg/default.asp?lang=En&n=985F05FB-1