Just this past week about 20 Canadian companies signed on to join the Carbon Pricing Leadership Coalition (CPLC). The company compositions range from finance to air lines. What this organization does is bring together governments, businesses and civil society groups to identify and address the key challenges to successfully using carbon pricing as a way to combat climate change and was officially launched at COP21. Minister of the Environment and Climate Change, Catherine McKenna, had worked with each company in order to draw their attention to the costs and opportunities of putting a price on carbon. Carbon pricing uses the market to influence companies into choosing cleaner decisions. The idea is that companies will improve innovation in order to reduce carbon emissions, thereby removing any financial burdens of a carbon tax.
Catherine McKenna meeting with company leaders from across Canada to commit to being private sector partners of the Carbon Pricing Leadership Coalition (CPLC).
By joining CPLC, each member company will agree to advance carbon pricing by working with each other towards the goal of a carbon price throughout the globe. Each CPLC member will agree to three commitments: strengthen carbon pricing policies to redirect investment proportionate to the scale of the climate challenge; bring forward carbon pricing policies and strengthen existing ones to better manage investment risk and opportunities; and enhance cooperation to share information, expertise and best practices.
While researching the subject I found an interesting note by The UNEP Inquiry into the Design of a Sustainable Financial System. They had researched financial and monetary policies, regulations, standards, disclosure requirements, credit ratings, listing requirements and indices, while also analyzing the effectiveness of each in aligning financial systems with sustainable development. They have concluded that Canada could benefit from this policy in order to achieve our climate commitments. The Federal government has committed to integrating the economy and the environment, while also ensuring that the financial system serves the needs of Canadians.
According to an MIT publication, air transportation is becoming a source of particular concern for three reasons: the industry will continue to maintain its reliance on liquid fuels; CO2 emissions are forecast to double or triple by 2050, making them the fastest growing sources of CO2; and since emissions from aviation occur at high altitude, they result in greater climate impacts than the equivalent from ground sources. The fact that Air Canada is one of the 20 companies that have recently signed to this CPLC pact is inspiring. Either Air Canada will finally purchase a new line of planes for their fleet or they will continue to strengthen their baggage restrictions. I personally hope they update their fleet; the planes are beginning to look a little old.
While all this sounds good and nice, there are two challenges we face in order to determine a course of action: how best to charge carbon polluters and how to most effectively use the revenues that are generated. Some provinces already have cap and trade programs or something similar, while other provinces are just starting. On top of that, some companies are looking to introduce their own form of internal carbon pricing. So obviously, the government shouldn’t be a barrier to a company’s competitiveness while introducing their own carbon plan. However, with Ontario’s projected temperature increases to reach 4C to 8C over the next 30 years, we better come up with something.
British Columbia had introduced a carbon tax in 2008, where they tax $21 per ton of CO2 emissions. Their fuel consumption is also down by 16% over the past 6 years. According to CPLC, the province is now home to a growing clean energy with a combination of 200 companies that generate $1.7 billion in revenues annually. This observation of 200 companies generating $1.7 billion in revenues isn’t really anything remarkable to be honest. Each company averages $8.5 million in annual revenue. There are mineral and gold companies around the world that alone have that make billions in revenue. Just a quick Google search will do. So I think that statement by the CPLC isn’t particularly inspiring for carbon pricing.
Recently, the CPLC released an Executive Briefing paper explaining their message to advance carbon pricing. The article concludes that businesses and governments have increasingly been employing carbon prices to drive a cost efficient transition to a low carbon economy; there is little evidence to support that carbon pricing has an effect on company competitiveness; and finally, competitiveness can be addressed through political engagement and targeted policies. It doesn’t have an academic paper kind of feel that I’m used to reading, but it outlines its argument. They argue that Sweden, which at 137 Euros per ton of CO2 has the highest carbon price in the world, has seen GDP growth increase by 60 % with a reduction of 25% in greenhouse gas emissions. They conclude that the science is there, it just needs the commitments.
A graphic of global emissions trading systems and carbon taxes. Several of these countries are participating in CPLC. (World Bank).
Overall, I’m not necessarily opposed to a price on carbon. A lot of government officials, universities, and business leaders agree that carbon pricing is necessary to cut emissions. I just don’t want much of the burden being transferred to the little guy. In Europe, the EU’s Emissions Trading System covers 45% of the EU’s greenhouse gas emissions. In order to help curb emissions, they reduce the total emissions allowances by 1.74% every year. So, in theory, emissions should be 21% lower in 2020 than they were in 2005. This is good, but something is off: allowances are 4.85 euros per metric ton. Researchers at a think tank called Resources for the Future, argue that the price is below the level that could spark transformational innovation and investment. The California/Quebec carbon price also puts little pressure on emission reductions. However, now that China is preparing to start a national carbon market next year, it may help reduce carbon emission levels, while also remaining relatively competitive. For Canada, let’s wait and see what the results show.