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Canada's Election and Cap-and-Trade

 

Canada's Election and Cap-and-Trade  

Tom Markowitz - Tuesday, April 26, 2011

Welcome to Enerhope
 

April 28, 2011

Canada’s Federal Election and Cap-and-Trade: Guide for the Perplexed

© Enerhope.com, 2011

On May 2nd, Canadians will vote for their Members of Parliament in a General Election. In Canada’s parliamentary system, the House of Commons has 308 seats for Members of Parliament. The nation is divided into 308 “Ridings.” Each voter in each of these Ridings must choose from a list of candidates, to vote for a new Member of Parliament, to represent the Riding in the House. Most of the candidates belong to political parties.

The party that wins the most seats in the election becomes the Government of Canada. During the election, each major party tries to win at least 155 seats, in order to have a majority of the seats in the new House of Commons. A Government party which fails to win at least 155 seats is a “minority” government, and must depend on support from non-Government Members, to win votes in the House.

At the time of dissolution of the last Parliament on March 25th, the following political parties held the following numbers of seats in the House:

 

Party

Seats in Canada’s

House of Commons

on March 25th, 2011

Conservative

143

Liberal           

  77

Le Bloc Québecois

  47

New Democrats (“NDP”)

  36

Independent  

    2

Vacant

    3

http://www.parl.gc.ca/information/about/process/house/partystandings/standings-e.htm

Until dissolution, the Conservative Party was the Government of Canada, but held only a minority of seats in the House of Commons. The minority government ended when the combined opposition parties defeated the Conservatives in a “vote of non-confidence.”

Limited Importance of the Environment as a Political Issue
According to the Nanos poll of April 19th, The Environment is listed as the most important issue in this election by only 5.9% of polled voters, well behind Health Care (32.0%) and Jobs/Economy (23.0%). 

http://www.ctv.ca/mini/election2011/polltracker/index.html

The low priority assigned to The Environment by Canadian voters in this election has discouraged detailed environmental policy announcements by all parties except the upstart Green Party.

Regional Issues
The populated area of Canada is a long, thin strip of land, over 5,000 kilometers in length, including various regions, with various industries, and various attitudes toward environmental issues. Inevitably, Canadian federal politics are dominated by regional differences. The prairie provinces of Alberta and Saskatchewan, with their coal-fired electricity generation, and their highly-successful oil and gas industries, do not share the same enthusiasm for greenhouse gas emission reductions which is prevalent in other parts of Canada.

At the same time, Canada lacks a constitutional document which clearly specifies the jurisdiction of the federal government and the provincial governments.

Writing in the National Post on April 25th, Aldyen Donnelly proclaims that a national cap-and-trade system would be an unconstitutional threat to the country.

http://opinion.financialpost.com/2011/04/25/cap-and-breakup/#comments

The forecast: instability, with local turbulence.

Political Parties in the Canadian Federal Election:
Here is a summary of the major political parties contesting the federal election, their political perspective, and their attitudes toward climate change and cap-and-trade.  (Caution! Not all campaign promises come true.)

Conservative Party
The Conservative Party, led by Prime Minister Stephen Harper, has been the Government of Canada since January, 2006, although with a minority of seats in the House. The Conservative Government is popular in the petroleum-producing provinces of Alberta and Saskatchewan, where it held 39 of the total 42 seats, as of March 25th.

In 2006, the new Conservative Government rejected Canada’s Kyoto pledge to reduce, by 2012, its greenhouse gas emissions by 6%, compared with 1990.
Instead, at Copenhagen, in 2009, Canada aligned itself with the United States, pledging to reduce its greenhouse gas emissions by 17% from 2005 to 2020. The Canadian Government was roundly criticized by environmentalists from within and without.

http://www.guardian.co.uk/commentisfree/cif-green/2009/nov/30/canada-tar-sands-copenhagen-climate-deal

Although originally skeptical, the Conservative Government accepted the reality of climate change, and announced a Regulatory Framework for Air Emissions in 2007, including a greenhouse gas emissions trading system for large direct emitters.

http://www.ec.gc.ca/doc/media/m_124/toc_eng.htm

However, in April, 2010, the government announced that it would wait for the United States to decide how it would impose climate-change regulations, before implementing a Canadian emissions trading system.

http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/ottawa-stalls-on-emissions-rules/article1536106/

During the 2011 election campaign, the Conservative Platform mentions technology support, large clean energy projects, renewable fuels for transportation, and residential energy retrofits, but does not mention emissions trading.

http://www.conservative.ca/media/ConservativePlatform2011_ENs.pdf

Liberal Party
Liberal leader Michael Ignatieff was the official Leader of the Opposition during the most recent Parliament. The Liberal Party was the Government of Canada from 1993 until 2006. During the Liberal era, Canada signed the Kyoto Protocol, in 1997, and ratified it in 2002, pledging that Canada would reduce, by 2012, its greenhouse gas emissions by 6%, compared with 1990.

During the final years of the Liberal Government, Canada crept toward a complex cap-and-trade system for large, final emitters of greenhouse gas. This system was not yet implemented, when the Liberals lost power in 2006.

Here is an excerpt from the Liberal Platform for 2011:

“A Liberal government will establish a cap-and-trade system – a mechanism that sets a ceiling on the total amount of permissible greenhouse gas emissions by large industrial facilities, and then auctions off emission permits to companies who can trade them amongst themselves to remain compliant under the law.
A cap-and-trade system already operates in Europe. Here in Canada, leading provinces including British Columbia, Manitoba, Ontario and Quebec – frustrated with the inaction of the Harper government – are working with American states to implement a North American cap-and-trade system by 2015 under the framework of the Western Climate Initiative (WCI).
Working with the provinces, a Liberal government will develop a system that applies to all sectors of the economy with no exceptions, and which will be equitable across all regions of the country.”

http://www.liberal.ca/Platform/clean-environment/

We can see from this document that a Liberal Government would establish a greenhouse gas cap-and-trade system.

This document appears to promote several ominous features:

(1)
The document promotes auction of allowances.

(Enerhope recommends free allocation of a limited number of allowances, under a hard cap. For Enerhope’s opinion of auctioning of allowances, please see Enerhope’s May, 2010 article, Kerry-Lieberman: OK? Not OK?)

http://www.enerhope.com/ForumRetrieve.aspx?ForumID=317&TopicID=7454&NoTemplate=False

(2)
“All sectors of the economy, with no exceptions”
(Cap-and-trade succeeds in lowering the emissions of large, direct emitters. Attempting to apply cap-and-trade to motorists, small businesses and homeowners would be a serious mistake.)

Le Bloc Québecois
Le Bloc was founded in 1991 to promote “sovereignty” for Québec. Support for Le Bloc is concentrated in French-speaking Ridings in Québec. Although Le Bloc, comanded by Gilles Duceppe, received only 10% of Canada’s total popular vote in the 2008 election, Le Bloc was able to win 47 seats.

In 2011, Le Bloc has published an election Platform that includes a scathing criticism of Canada’s greenhouse gas history. Le Bloc recommends a territorial approach to greenhouse gas reductions across Canada, but then contradicts the territorial approach with recommendations for a national cap-and-trade system for specific emitters, based at the Montreal Carbon Exchange.

http://www.blocquebecois.org/dossiers/parti/plateforme.aspx

New Democratic Party (“NDP”)
The NDP, led by Jack Layton, is a socialist labour party, which has occasionally been the provincial government in three provinces, but has never been the Government of Canada.

The 2011 NDP Platform includes promises of many environmental policies and programs to reduce Canada’s greenhouse gas emissions. These promises include a cap-and-trade system for large, final emitters:

“We will put a price on carbon through a cap-and-trade system, which will establish hard emissions limits for Canada’s biggest polluters to ensure companies pay their environmental bills and to create an incentive for emissions reductions.”

The NDP Platform, like the Liberal Platform, specifies the auction of cap-and-trade allowances:

“We will redirect revenues raised through the auctioning of emissions permits equitably across Canada into investments in green technologies, business and household energy conservation, public transit, support to renewable energy development, and transitioning workers to the green economy”

http://www.ndp.ca/Platform/tackle-climate-change

The NDP Platform specifies the projected government revenues from sale of allowances, year-by-year.

2011-2012     $3.6 B
2012-2013     $4.3 B
2013-2014     $6.2 B
2014-2015     $7.4 B

http://xfer.ndp.ca/2011/2011-Platform/NDP2011PlatformSS_web_en.pdf

Is this revenue forecast realistic? Let’s calculate how much one tonne of greenhouse gas emission allowances would cost in the NDP’s auction:

In 2009, Canada’s 300 large, direct emitters of greenhouse gases emitted a total of 239 megatonnes of CO2 equivalent.

http://www.ec.gc.ca/Publications/84468072-E951-45AD-A63E-EA8BEB26F1BC/OverviewOfTheReported2009GreenhouseGasEmissions.pdf

If a Canadian Federal Government imposed a cap-and-trade system with a “hard” cap on this group of large, direct emitters, the total allowances would be less than 239 megatonnes. Let’s assume that the government in 2011-2012 creates 215 megatonnes of allowances. A government which expected to raise $3.6 billion in revenue from the sale of allowances would have to sell each tonne of allowances for ($3.6 billion / 215 million) = $16.74 per tonne, which is a realistic cost of emission reduction. This is a plausible scenario, but a serious error in design of an emissions trading system (as mentioned above).

Green Party
The Green Party of Canada was founded in 1983 to promote the environmentalist agenda, front and centre. According to the latest poll by Nanos Research, the Green Party commands only 3.6% of the total popular vote among committed voters. This support is distributed thinly, across Canada. Green Party leader Elizabeth May has an outside chance to win a seat in the House of Commons.

The Green Party Platform includes many policies and programs to reduce Canada’s greenhouse gas emissions, including an increasing carbon tax and a cap-and-trade system for large, final emitters.

http://greenparty.ca/files/attachments/vision_green_2011en_0.pdf

Probable Outcome of the Election
Here are two recent predictions of the outcome of the May 2nd election, presented on April 25th on the web site

http://www.electionalmanac.com/canada/projections.php

 

Number of Seats

 

in Canada's House of Commons:

May 2nd General Election

Party

April 23rd Prediction

April 24th Prediction

Conservative

143

148

Liberal

78

76

NDP

48

48

Le Bloc Québecois

39

36

Green

0

0

 

According to these predictions, the Conservatives will again become the Government of Canada, and will persist with their existing policies. Once again, the Conservatives will form a minority government, and will require the support of non-Conservative Members to win votes in the House.

As a minority government, the Conservatives will face the ever-present risk of losing a vote of non-confidence. However, after the forth national election in seven years, all political parties will be exhausted, physically and financially. No party will be eager to jump into another general election for many months.

Implications of the Election on Cap-and-Trade
Here are Enerhope’s predictions, based on three alternative election results:

Alternative #1:
Conservative Minority Government, Liberals Plus NDP less than 155 Seats:
In this scenario, Canada will probably not proceed with a greenhouse gas cap-and-trade system, although the non-cap-and-trade Conservative Members in the House will be outnumbered by the pro-cap-and-trade Members from the three opposition parties. Exhausted from the election, the opposition parties will not consider combining their votes to force their environmental policies on the Conservative Government for at least two years.
Among the provinces of Canada, Alberta will continue with its Specified Gas Emitters Regulation, while British Columbia, Ontario, Manitoba and Quebec will edge closer to participating in the Western Climate Initiative’s cap-and-trade system.

Alternative #2:
Conservative Majority
If the Conservatives win more than 155 seats in the House of Commons, the Government will continue with its present environmental policies. A Canadian cap-and-trade system for greenhouse gases will be extremely unlikely. The five provinces mentioned above will continue with their cap-and-trade activities.

Alternative #3:
Conservative Minority; Liberals plus NDP Win more than 155 Seats:
In this “coalition” scenario, the Liberals plus NDP could drive the Conservatives out of office through a vote of non-confidence, early in the next Parliament. Canada’s Governor-General may then call another general election (not a popular option) or he may invite the Leader of the Opposition to form a Government, based on a precarious coalition between the Liberals and the NDP.
Such a coalition would proceed with a Canadian cap-and-trade system for greenhouse gases.

Living next to an Elephant
Canada’s biggest trade partner is the United States of America. Canada’s two biggest exports to the USA are motor vehicles and parts, and petroleum and natural gas. Both of these products figure heavily in climate change policies.

The USA has failed to implement a national greenhouse gas cap-and-trade system, defeated in the US Congress by a combination of Republican Senators and “blue dog” Democrat Senators from fossil-fuel states. Republicans and Democrats certainly do not agree on the need for US Government regulation of greenhouse gas emissions by US industries, but they certainly do agree on the need for US Government regulation of products imported from other countries. Canada may be forced by US trade restrictions to impose a greenhouse gas cap-and-trade system on Canadian industries.

“May you live in interesting times!” 


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