Carbon pricing enacted by provinces, rather than federal regulations, will allow Canada to meet increasingly ambitious greenhouse-gas emission targets, a prominent group of economists urge in a report to be released Tuesday.

As Ontario prepares to unveil its proposed cap-and-trade plan, the economists who make up Canada’s Ecofiscal Commission say provincial action, and not federal policy, is “the most practical way to move forward in achieving meaningful, low-cost reductions” in emissions.

The group is chaired by McGill University’s Christopher Ragan and includes several former federal civil servants, including Mel Cappe, who was Ottawa’s top bureaucrat, and Don Drummond, who served as a senior official at Finance Canada. Its promotion of market-based climate policies – whether taxes or cap-and-trade – has the backing of such former politicians as Paul Martin, Jean Charest and Preston Manning.

Mr. Ragan says carbon plans are superior to the regulatory approach, which compels particular firms and industrial sectors to reduce emissions, because all companies would have economic incentives to find the most profitable way to cut greenhouse gases.

The commission’s recommendations come as Ontario is finalizing a plan to join Quebec and California in North America’s largest carbon market, where rights to emit greenhouse gases can be bought and sold to encourage innovation and cost-effective action.

The Ontario cap-and-trade plan could raise between $1-billion and $2-billion per year, depending on the price of carbon credits and the amount of free allocations provided to industry. The revenue would likely be plowed back into green programs, such as public transit or energy conservation retrofitting

In the report, the economists say the country needs to move quickly to adopt new carbon policies in order to meet existing national and provincial targets, and so that Canada can make more ambitious commitments at the UN climate summit in Paris in December.

“Making national progress on reducing GHG emissions is necessary, and the longer progress is delayed, the more it will cost Canadians,” the report says. “Provinces have the jurisdictional authority and policy momentum to make important headway on this issue now by adopting carbon-pricing policies, which achieve emissions reductions at the lowest cost.”

The Ecofiscal group takes no position on whether a carbon tax – like the one in British Columbia – is preferable to a cap-and-trade system, saying there are strengths and weaknesses with each approach. It does, however, argue the pricing strategy should be as broad-based as possible, and urge Alberta to expand its policy beyond the current regulations that cover only large industrial emitters such as oil sands producers and coal-fired power plants.

Alberta’s system “creates no incentives for emissions reductions from small emitters, including buildings, vehicles and small industrial sources,” the report said. “This narrow coverage contributes to the limited effectiveness of Alberta’s existing policy.”

The federal government has been widely criticized by environmental groups and opposition parties for its failure to adopt more aggressive climate policy. Prime Minister Stephen Harper – whose government once contemplated a cap-and-trade plan – now espouses a sector-by-sector approach. But it has shelved plans to impose regulations on the oil sands, the fastest-growing source of emissions in Canada.

With the Paris summit approaching and Canada on track to fall short of its 2020 emissions-reduction target, opposition parties are gearing up to make climate change an issue in the general election expected in October.

The New Democrats are promoting a national cap-and-trade plan, and NDP deputy leader Megan Leslie rejects any notion that Ottawa should leave leadership on the issue in the hands of the provinces. Liberal Leader Justin Trudeau is proposing a national carbon price. He would leave provinces to design their own plan, but promises minimum standards with federal incentives and penalties to ensure compliance.

In an interview, Ecofiscal chair Mr. Ragan said a “one size fits all” plan would be virtually impossible to implement given the differing energy mixes and political agendas in the provinces. And he said the federal government still needs to pursue its own climate strategy, saying provincial carbon pricing would be a “necessary but not sufficient” contribution to the country’s effort.

But he acknowledged provinces have differing levels of ambition for reducing greenhouse gases, and Canada’s overall performance will suffer if oil-and-gas producing jurisdictions don’t increase their commitment.

“The challenge with the provincial approach is that you’ve got to make sure this issue resonates in all provinces,” he said. He noted that Alberta Premier Jim Prentice has promised to revisit that province’s climate strategy, though Mr. Prentice is expected to call an election first.

OTTAWA — The Globe and Mail
Published Tuesday, Apr. 07 2015, 6:00 AM EDT
Last updated Tuesday, Apr. 07 2015, 7:38 AM EDT