Monday, October 3, 2016

Carbon Pricing, Nova Scotia, and Walkouts

Nova Scotia has a problem when it comes to greenhouse gas emissions. Of course both the federal and provincial governments know this. Sometime around 2015 a quiet new unit was created (or expanded) in the provincial Finance Department to begin studying carbon pricing options. People were moved from Environment and elsewhere to be part of it. It’s why I knew. I lost staff to it as Environment Minister. The only reason to do this was because it was known that Nova Scotia was on its way to carbon pricing or cap and trade.

The Premier is right when he says we have done a lot – more than most provinces – in reducing carbon. This shift started under the PCs with the Environmental Goals and Sustainable Prosperity Act and continued with new targets under the NDP. Nova Scotia’s carbon reduction has come largely, though not exclusively from the electricity sector. You have to careful of falling for the Premier’s statement that the cost of electricity increases in this province have come almost entirely from a need to reduce carbon emissions. They haven’t. Even without any restrictions on carbon, Nova Scotia was faced reducing things like mercury, SO2 and NO2 from coal fired plant emissions. Those have come with a huge cost. In fact, Nova Scotia has still not made up for mercury reduction targets and has implemented a bulb recycling plan to try and compensate. The type of coal Nova Scotia Power has needed over the past 10 years or so to meet emission requirements has increased dramatically, and this was on top of the cost of new equipment to capture particulate and other emissions.

Some new “green” energy has been necessary to meet carbon emissions. This is true, though it should be noted that without legislative change, imported energy from Muskrat Falls would not have counted as emission free (and still doesn’t count in some areas of the world).

Despite the work to reduce carbon, if it were not for the closure of some large industries such as Dartmouth’s Imperial Refinery, Nova Scotia would not be closing in on the 2030 reduction goal so easily. As well, the existing plan, while reasonably aggressive at the time, leaves limited room for new emissions resulting from planned LNG plants, offshore development, or any significant economic growth in the province. To top it off, despite the fact the federal government has not yet adjusted the Harper era carbon targets, it appears the existing federal goals for 2030 may not be enough to achieve what was agreed to at Paris. This means Nova Scotia will still have work to do beyond existing targets. Despite that, in the spring session the Nova Scotia government still refused to set targets matching the Paris agreement.

With that in mind, the Prime Minister today announced he was enforcing the option of a Carbon Tax or Cap and Trade for all provinces. He chose two options already in use in large Canadian markets, and elsewhere. It’s not overly surprising. I had a sense when I was in government the federal partners did not feel Nova Scotia’s plans would address the climate targets long term. I was surprised to hear the Premier suggest recently that they might have a side deal with Nova Scotia, but I also assumed he wouldn’t say it unless it was a done deal. I guess he would.

Today, Nova Scotia’s Environment Minister Margaret Miller walked out of the meeting on carbon pricing to express displeasure with the Prime Minister’s announcement that provinces either get on board with a carbon tax or cap and trade.  Walking out is just one of those things politicians do in order to ensure they get a headline back at home. It would have been approved by the Premier, and probably recommended by the myriad of communications people that now occupy a high percentage of offices in the Premier’s office as the best way to get attention back home and be able to say “look, we made a stand”. It worked. It’s the lead story for many Nova Scotia news outlets. Despite that, discussions almost certainly continue between bureaucrats at the federal level and the Nova Scotia government. The reality is if Miller did not go to this meeting with an agreement in hand from the federal government, she would (or should) have known she was not getting one given the vote on the Paris Accord had been announced, and minister’s meetings don’t happen unscripted.

This gets back to Nova Scotia’s problem. Businesses seek consistency between jurisdictions. There was no way for Nova Scotia’s system to be consistent with anyone else because it was by its nature a unique agreement. No matter what happens in the short term, the world will almost certainly move to a system where every major economic jurisdiction participates in pricing carbon, whether through carbon trading or taxation (and yes I know some schemes have been tried and failed in the past). Some of the world’s leading economists have been saying this for years. Shell and BP (as well as other major energy players) already price in speculative carbon prices. In fact, in Paris those companies supported carbon pricing. They admit they do it already in their projects, but won’t say what their estimate is. This includes estimates for Nova Scotia’s offshore projects.

Consistency matters. Many businesses just want to be dealing with the same system in every province, and not different rules everywhere. That’s why the Prime Minister did what he did. (Though I’m surprised he chose two systems rather than one.) Nova Scotia has complained about this very issue when it comes to labour mobility and other trade between provinces. To not understand that argument on this issue is hypocritical.

Carbon taxes and Cap and Trade are unquestionably challenging issues. When I was Environment Minister, the ministers from Quebec and Ontario called me frequently to discuss joining their Cap and Trade plan. A partner in their scheme, the California governor’s office talked to me to lobby for the province to join. Since leaving cabinet I have talked and met with dozens of governments and companies about how to address the targets in the Paris agreement. Carbon pricing of some kind seems inevitable.

Nova Scotia has always been wary. In fact, in advance of the Paris Climate Summit the Premier’s Office was unwilling to even sign on to the Under 2 MOU. This was despite the fact it had been signed onto by many of our trading partners and endorsed by some of Canada’s major fossil fuel energy players as well as numerous companies around the world. Once the Paris conference was done, the end agreement that Canada signed onto was slightly more aggressive than the Under 2 MOU Nova Scotia had refused to sign onto.

Unless there is a sudden change, as it appears is about to happen on the appointment of Supreme Court judges from Atlantic Canada, it seems that the Nova Scotia government will be left to simply stomp its feet and pout, which is basically what walking out of a meeting for the cameras is the political equivalent of. This ignores the real issues Nova Scotia has. Outside of being angry at the federal government, Nova Scotia needs to be part of system that offers consistency to new and existing investors in the province. It also needs to address the gap that may be coming in its carbon reduction targets. As a result, even if the federal government gives Nova Scotia some credit for regulatory work on electricity, it will still have to fill the gap with one of the two systems.

It appears that now means Nova Scotia has to find its way into being part of one of the options approved by the federal government. Of course, don’t think for a second plans haven’t been made to do this. It’s why that unit in the Department of Finance was setup in the first place.