Ramping up: Ambitious climate policy returns to British Columbia
It’s been a pivotal few weeks for provincial climate policy. Ontario released its new climate strategy last week, scaling back provincial targets and replacing its cap-and-trade system with a mix of regulations, subsidies, and a pricing system for heavy emitters. Yesterday, the coalition government in British Columbia released its own newly-minted CleanBC strategy. Happy holidays, policy wonks!
B.C.’s new climate strategy is a package of ambitious measures that once again make the province one of the country’s climate leaders. Underpinned by the province’s steadily rising carbon tax, which will hit $50 per tonne by 2021, the strategy also adopts a range of other climate policies—beyond explicit carbon pricing—that will move the province closer to its 2030 emissions target. This blog takes a closer look at some of these policies and the extent to which they minimize the economic costs of climate action.
B.C. has been a leader on climate. In 2008, in response to the absence of meaningful national policy, B.C. implemented North America’s first economy-wide carbon tax. It started at $10 per tonne of GHG emissions in 2008, froze at $30 from 2012 until 2018, and will rise by $5 every year until it reaches $50, aligning it with the federal government’s carbon pricing backstop. We will have to wait and see what happens to the carbon price beyond 2021. B.C. has not ruled out further increases.
The carbon tax is working well and reducing emissions. But the current price trajectory of the tax will not be enough to reach the province’s ambitious climate target alone. And unlike several other provinces, B.C.’s electricity grid is already clean, which means the province has already plucked some of the lowest-hanging fruit for emissions reductions.
All told, B.C. needs to dig deep to reach its targets. The CleanBC strategy—fully realized—will get it 75% of the way (a plan for the remaining 25% will come in 2019). And instead of increasing the price of carbon emissions beyond $50 per tonne (which no Canadian government is seriously considering at the moment), B.C.’s strategy relies on other policies, in addition to the carbon tax, to do the heavy lifting (see figure).
But good climate policy considers costs alongside emissions reductions. And in terms of cost-effectiveness, not all climate policies are created equal. How do the different elements of B.C.’s strategy stack up?
Genuine complements to B.C.’s carbon tax
The B.C. strategy contains a few policies that will do things that carbon pricing can’t. These elements have a clear role to play as part of cost-effective package.
The strategy includes, for example, regulations that target methane leaks from the oil and gas sector. Since it’s difficult to measure and price these emissions, regulating them makes sense. And because methane that doesn’t leak can be sold (i.e. natural gas), these regulations offer a relatively cheap way to reduce emissions. The plan also includes other “gap-filling” policies, including waste diversion targets for organics and methane capture at landfills (although these policies may not work well together—diverting organics from landfills means there’s less gas to capture).
Some complementary policies in the plan have economic objectives. To protect competitiveness of businesses, energy-intensive and trade-exposed firms will be eligible for rebates on the amount of carbon tax they pay above the base of $30 per tonne of GHGs, based on their emissions intensity. The cleaner the technology, the bigger the rebate. Emitters using world-class technologies to reduce emissions will be eligible to receive a full rebate. The system will function very similarly to the output-based pricing approach in the federal backstop.
Embracing market principles
The biggest chunk of emissions reductions in B.C.’s plan (21%) come through flexible regulations for the transportation sector. The province implemented its low-carbon fuel standard (LCFS) in 2010, requiring fuel distributors to reduce the carbon-intensity of their fuels 10% below 2010 levels by 2020. The new plan ramps up the stringency of this policy, requiring a 20% reduction in carbon-intensity by 2030. Crucially, the policy is technology-neutral; it doesn’t care how distributors reduce their carbon-intensity.
B.C.’s strategy includes a second flexible regulation for zero-emissions vehicles (ZEV), which requires a certain portion of all cars sold in the province to be zero-emissions. It will be easier for some automakers to meet or exceed these quotas than others; automakers that can’t meet the quotas cost-effectively can buy permits from those that exceed the quota. This trading increases flexibility and helps bring down costs. Quebec adopted a similar regulation in 2018.
Taken together, these flexible and technologically-agnostic regulations will help drive significant emissions reductions at relatively low cost. However, it’s important to note that flexible regulations are still costlier than simply increasing the carbon price. The price of permits to comply with the LCFS, for example, is about $200 per tonne, well above the current $35 carbon tax.
Trimming the fat
Finally, some policies in B.C.’s strategy could come with an even higher price tag. Household rebates (e.g. home retrofits and some types of ZEVs), may be offered to people who were already going to take these actions. Even though these rebates make clean technologies more affordable for households, some emissions reductions will not be driven by the policy, which undermines its overall cost-effectiveness. Subsidies for ZEVs in Quebec, for example, cost about $395 per tonne of GHGs reduced.
There are also other policies that the province might be better off scrapping in favour of a higher carbon price. For example, B.C.’s new plan will require natural gas distributors to blend 15% of renewable natural gas into their supplies. If this were a cost-effective way to reduce emissions under the carbon tax, distributors would already be doing it. To induce this type of behavioural change, B.C. would be better off increasing its carbon tax beyond $50 per tonne.
Overall, the CleanBC strategy is meaningful and a step in the right direction. It should come as no surprise that our preference would be a carbon tax that goes above and beyond the $50 per tonne in 2021, allowing the government to rely less on policies that carry a higher economic cost. But if governments do choose to rely on regulations instead of higher carbon prices, they would be wise to follow B.C.’s lead in making those regulations as flexible and as market-driven as possible.
B.C.’s carbon tax has served as a model to the world and its new strategy builds on a history of leadership. And while there’s plenty more to come in 2019—including a full costing of the existing measures and detail on how the province will hit the remaining 25% of its target—this plan clearly shows that B.C. is again serious about climate action. The challenge for government will be to design these policies at the lowest possible cost for British Columbians.
Photo credit: Michael Ruffolo