Hold Fast: Climate leadership in troubled times

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Climate and Energy

With climate leadership from the U.S. in doubt, some are suggesting Canada should pull back from its climate strategy. If Canada acts alone, the argument goes, we will impose significant costs to the economy, and do little to cut global emissions. But is it true? Do we really need to wait for the U.S. for Canadian policy to make economic sense?

In fact, the arguments for leadership out-weigh the reasons to delay. While transitioning to a low-carbon economy will indeed impose economic costs in the short-term, doing nothing will be far costlier and far riskier in the future. The world needs bold climate leadership, and there’s a strong business case for Canada to be front and centre.

The stock of climate leadership is in short supply

These are tumultuous times for climate policy. The new U.S. Administration has signalled (though somewhat ambiguously) that the federal government will no longer prioritize climate change mitigation. This may involve the unravelling (formally or informally) of the policies and commitments that have been built up over the past decades.

The influence of U.S. climate policy extends far beyond its borders. The U.S. is the second largest emitter of GHGs and is the world’s biggest economy. It’s actions (or inactions) on climate policy matter more than any other country. With its leadership in question, there is a risk of a global backpedaling on climate policy. Other countries—like Canada—look to the U.S. as a baseline for its own policies. Weakened leadership risks starting a domino effect if other countries start believing climate policies are a fool’s errand.

Opposition voices are loud in Canada, and have grown sharper over the past few months (see here and here). Canada represents less than two percent of the world’s total emissions, so many believe we should pull back on the federal and provincial climate agreements and policies.

But the case for pricing carbon in Canada still stands, even as the U.S. presses pause. Furthermore, the case for leadership doesn’t rest on morals. It rests on economics.

The case for smart and timely climate leadership

First, the transition to a low-carbon economy is already happening. The cost of renewables has fallen markedly in the past decade, reaching a point where coal—once the primary source of cheap fuel—is no longer a sure bet for investors. Businesses are starting to plan accordingly: either adapt to changing markets or risk being left behind.

Delay is also costly.  If world markets are already shifting and beginning to adjust to a low-carbon future, starting the transition earlier in Canada means it will be less painful and costly in the long run. Some of the largest contributors to climate change—such as infrastructure and vehicles—can take decades before they’re replaced with greener alternatives. Acting early may also help diversify Canada’s economy away from fossil fuels, carving out a competitive advantage other countries may lack.

The economic case for leadership is strongest when policy is most cost-effective.  Of all the ways to reduce GHG emissions, carbon pricing is the least costly way to accelerate the transition and reach our climate commitments. Putting a price on carbon sends a direct signal to households and businesses to seek out a lower carbon footprint. People who put a relatively low value on their carbon-intense activities will find other, less carbon-intensive activities. Those who put a high value on carbon-intensive activities will carry on as normal, but will pay more to do so.

It is important to recognize that climate policies do have economic costs—the challenge is how best to minimize these costs, while, at the same time, achieve Canada’s climate commitments. Acting now means that the economic costs are more immediate and tangible, but it dramatically lessens the magnitude of costs and risks in the future. Given the choice, making a careful, gradual, and more predictable transition with carbon pricing is a far better option than shocking the economy with a sudden spike in stringent policy later.

From the Canadian laboratory to the world stage

In addition to domestic emissions reductions from Canadian policy, climate leadership can also have spillover benefits in reducing global emissions. British Columbia’s carbon tax, for example, is often cited as a best-practice by the U.N., World Bank, and the OECD. Other countries can see that carbon pricing is not only possible, but can be designed to reduce GHG emissions without adversely affecting the economy. (There’s room to disagree on how best to design carbon pricing; however, this isn’t a reason to oppose carbon pricing as an instrument.) Being a leader on climate also gives Canada a seat at the table in pressuring other countries to stay on track.

First things first: let’s all just take a deep breath

Canada has made immense progress on its climate policy over the past decade. It would be economically disadvantageous if we were to allow the unfolding events in the U.S. to undercut the work already accomplished. Dealing with climate change is a long-term problem and shouldn’t be taken off the rails because of small blips in political cycles.

The transition to a low-carbon economy will have costs, there’s no way around it. But the costs will be far greater, and the risks far higher, if Canada backs down from its progress. Further, Canada’s charted path sends a positive message to the rest of the world: climate leadership need not come from the world’s biggest emitters.


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