Why is it important for Canada to move away from a carbon-based economy?

If we take seriously the science regarding the causes and consequences of climate change – and I certainly think we should – then the entire world will need to make a transition away from carbon-based fuels and products over the next several decades. Canada is a small country in a large world, but there is no reason why Canada shouldn’t be equally involved in this transition. As a significant producer of fossil fuels, our path forward may not exactly match the paths of the many non-oil-producing countries, and that’s OK. The details will naturally look a little different across countries. The important thing is that we fully and constructively participate in the global effort to make this crucial transition to a low-carbon economy.

Why is carbon pricing the best way to wean Canadians off oil and gas?

For any government that wants to design climate policy, there are essentially two choices. The first is to use prescriptive regulations that direct industries and consumers how and how much to reduce emissions. This approach can be quite effective at reducing emissions, but it is generally very costly for the economy. Our goal should be to reduce emissions while maintaining the greatest possible economic prosperity. And this objective suggests the second policy approach – carbon pricing. The beauty of carbon pricing is that policy sets a price on carbon emissions and then private markets determine the least-cost pattern of emissions reductions. Research from Canada’s Ecofiscal Commission suggests that for every Canadian province to achieve its 2020 emissions-reductions targets, using carbon pricing rather than regulations is better by over 3 per cent of GDP. That is a permanent and huge advantage of carbon pricing.

With the new federal government’s focus on cutting GHGs and promoting renewables, is there still a place in the economy for Canada’s oil and gas sector, and if so, what is it?

Yes, certainly. Canada is blessed with a natural resource that is valued all over the world, and will be for many years into the future. The global transition toward a low-carbon economy is real, but it will be gradual. It will probably take 60 years or more to reduce global fossil fuel use to a level 80 per cent below current levels. During that long transition period, someone will need to supply the oil that will still be needed, and there’s no reason why Canada shouldn’t try to be an active supplier in that global market. However, much of Canada’s oil supply is relatively high-cost and carbon-intensive, so Canada will only secure its place on that global supply curve if it can reduce costs and carbon intensity. By driving innovation, a carbon price can be an important part of that security.

What’s it going to take for Canada’s GHG reduction commitments at COP21 in Paris last year to be achieved?

If we want to achieve our current emissions-reductions targets for 2030, and do it in a way that maintains the highest possible level of economic prosperity, we need to have a pan-Canadian carbon price. This has two parts. First, we should have a common carbon price in every part of the country. Second, the common carbon price needs to increase over time so that there is a growing incentive to reduce GHG emissions. Whether this price is achieved by provincial action and co-ordination, by federal action, or by some combination of federal and provincial action, is a crucial question, and one that is being determined behind the scenes as we speak. I think the next few months will be fascinating to watch as the federal and provincial governments figure out just how this policy landscape will unfold.

This piece was originally published in the Globe and Mail’s Energy builders section (sponsor content) on Thursday, June 2, 2016.