Fair comparison of the cost of climate action needed in Saskatchewan
by Brett Dolter & Dale Beugin
The Saskatchewan government released a two-page press release last week describing the impacts of carbon pricing, alongside a report from the University of Regina. More evidence about policy options is always welcome. But evidence is only helpful when used in context. For three reasons, the Saskatchewan press release confuses more than it clarifies.
First, the analysis significantly overstates likely impacts on the economy.
Most notably, the press release is inconsistent with the detailed report and appears to incorrectly report impacts on Saskatchewan GDP. The problem appears to be a math error, in which the press release mistakes impacts on the overall size of the economy, with impacts on growth from year to year. As a result, the press release incorrectly shows very large economic impacts from 2021 onwards.
Yet even the more moderate impacts shown in the University of Regina study appear to be inconsistent with other credible estimates of carbon pricing. A wide range of economic modelling — including from analysis from the Ecofiscal Commission — finds that the economic impacts of carbon pricing are small or even negligible, depending how revenue is used. Before rushing to judgment, the Saskatchewan results should be compared with results from other climate policy models.
Second, the analysis doesn’t compare apples to apples when comparing carbon pricing to Saskatchewan’s proposed Prairie Resilience plan.
Strangely, the University of Regina study does not report how emissions will change due to policy. This raises questions about the environmental impacts estimated in the press release. Are the emissions reductions estimated an annual number? How were the likely impacts of Prairie Resilience modelled, given that the University of Regina study does not explore this policy (though it could have)? Why do both the press release and the consulting report focus on Saskatchewan’s industry, when the carbon pricing being modelled appears to only apply to buildings and transportation?
As climate policy analysts we are left scratching our heads. Where did these numbers come from and what do they mean?
Third, the press release overstates impacts for households and agriculture.
The press release draws on numbers that represent an absolute worst-case scenario in terms of cost. It assumes that all of the carbon pricing revenues are collected and then disappear from the economy. Unless the provincial government loses the money or decides to burn it on the steps of the legislature, this outcome is rather unlikely. Using revenue to fund rebates to households, for example, could mean that households see no net impact of carbon pricing on their income. Similar support could be provided to agriculture.
Just as importantly, the numbers also don’t account for how households can take action to avoid paying the carbon tax: If you install insulation in your basement you can reduce the amount of carbon you emit and save on those carbon costs. And over time, technologies will improve.
While we continue to peel the onion of the province’s carbon pricing analysis, we can conclude that there is not enough evidence here to write off carbon pricing as a strategy for climate action. The University of Regina model estimates GDP impacts that aren’t consistent with other analyses, and we don’t know why. The GHG emission savings look to be comparing apples to oranges, but we haven’t been given the numbers to investigate this properly. The household impacts and impacts on agriculture are overstated with a half-truth that assumes carbon pricing revenues disappear from the economy. The press release appears focused more on making the case against carbon pricing than making a fair comparison between the federal plan and Prairie Resilience.
New economic modelling capacity in Saskatchewan is welcome. But models are only as good as their assumptions. Let’s continue to use good economic analysis to study the cost of climate action. But let’s be sure to use that analysis to make fair and transparent comparisons between all of the options on the table.
Brett Dolter is post-doctoral research fellow at the University of Regina.
Dale Beugin is Executive Director of Canada’s Ecofiscal Commission.
This piece was originally published in the Regina Leader-Post on July 10, 2018.
One hypothesis for different acceptance of carbon pricing across canada: its the hydro-heavy provinces where its popular, because decarbonization usually has 2 steps: 1) convert everything to electricity 2) clean the grid. So if you have lots of cheap green hydro you’re already half done.
Another hypothesis for populist resistance in some provinces: its not the tax, its the rebate formula. BC cut income tax, which helps high income earners and small business owners. AB sends rebate checks based on a progressive tax formula – so high income earners get no rebate check.
And that may be seen as carbon-unfair and the trigger for the phrase ‘tax grab’. If so I would like to see an analysis if carbon-fairness would lead to more high income earners early-adopting technology -by self-financing and risk taking- which would in turn help bring early scale and scale benefits such as reduced cost to green technologies – and help accelerate decarbonization more so than a progressive rebate system.
By carbon fairness, I mean if a top .0000001 % income earner lives a carbon free lifestyle with carbon free inputs, they would come out ‘levy-ahead’ and a bottom .0000001 % income earner who live a carbon heavy lifestyle would come out ‘levy-behind’. The rebate would be per person regardless of income – it would be income-neutral/income-agnostic. And high income earners would have a little payback to encourage adopting new technology. For example the poor buy second hand cars. The well off buy new cars. So what new cars are sold today affects what poor people drive in 5 years. Get those high income earners buying green cars, and in 5 years the poor will be too.
Social equalization can be done through other taxes and programs.
Hi Doug. Thanks for your comment.
I think you’re right that a decarbonized electricity sector might make carbon pricing more palatable. But it also depends on the context. In Ontario, there’s a lot of unhappiness about high electricity prices. It was part of the reason for opposition to a carbon price here, despite the fact that it wouldn’t have added much to people’s hydro bills.
I also agree that an equal dividend to all households or individuals might help reduce opposition to carbon pricing. But I think whether or not it would help accelerate decarbonization is an open question. If it did, it might do so at a high opportunity cost: high-income earners can afford new technology; giving them an equal rebate means that that money can’t go elsewhere, including toward public investments that would lower GHGs. However, the benefit of having a simple, transparent and fair way or returning revenues might very well outweigh these costs. See our report Choose Wisely for our thoughts on revenue recycling trade-offs.
With the full study released, do you have any further criticisms on it’s methodology? What assumptions did their model use that led them to a result so drastically different from most credible models I’ve seen?
Even the full study isn’t particularly informative re: model assumptions, so I’m just not sure why it’s so different from other models or even other CGE models. The problem is exacerbated by the SK press release, which appears to be inconsistent with the modelling, but even that doesn’t explain it; the model results seem extreme, especially for a scenario with a relatively low price applied only to buildings and transportation.