Reality Check

The NDP's cap-and-trade plan: Brace for sticker shock

Fri, 29 Apr 2011 17:10:25 -0500

- By Greg Weston, CBC

 

With the New Democrats surging in the most recent pre-election polls, Canadian consumers might want to take a closer look at the party's centerpiece plan to reduce greenhouse gas emissions.

 

The end result could be sticker shock on the average family's hydro bill.

 

The NDP wants to implement what is called a cap-and-trade system of financial penalties and rewards, aimed at forcing the country's largest polluters to clean up their act.

 

Under the plan, an industrial plant exceeding government-set pollution limits would have to buy "carbon credits" - essentially a penalty equal to $45 a tonne of excess emissions.

 

(The $45 figure doesn't come from the platform itself but from the party's "costing document," which anticipates government revenues from cap-and-trade auctions of $7.4 billion by 2015.)

 

As that plant cuts its emissions, it would be able to recoup some of the money paid in penalties by selling its accumulated carbon credits to other companies that need them.

 

In theory, it all sounds harmless enough.

 

But there is one overwhelmingly inconvenient truth about any cap-and-trade system designed to cut GHG emissions.

 

Someone has to pay for it, and the most likely candidate is the Canadian consumer.

 

Industrial pass along

 

The NDP is specifically promising not to punish consumers at the gas pumps or on home heating, claiming that cap-and-trade would only be applied to large industrial polluters.

 

Of course, the NDP promise to consumers turns on the bold assumption that an oil company, hit with a hefty new environmental expense on production, would not pass it along at the gas pump. (Even the environmentally sympathetic Pembina Institute suggests the NDP plan might bring about a four cent a litre increase at the pump.)

 

There's another catch: By far the country's largest producers of greenhouse gas emissions are public utilities, mainly electrical generating plants powered by coal, oil and gas.

 

Together, those facilities are responsible for about 40 per cent of all Canada's annual GHG emissions.

 

The short-term financial impact of subjecting those power utilities to a cap-and-trade system could be very large indeed.

 

For instance, Ontario's five generating stations that run on fossil fuels produce about 28 million tonnes of greenhouse gas emissions every year.

 

A cap-and-trade system would cost those utilities alone hundreds of millions of dollars a year in penalties until they could significantly reduce their emissions.

 

Those increased annual costs, of course, would ultimately have to be borne by consumers, provincial taxpayers, or future generations stuck with massive debt.

 

The penalties could go on for a long time - building a new nuclear plant to replace a coal-fired electrical generating station, for instance, can take upwards of 15 years.

 

And, of course, someone has to pay for those new plants.

 

The NDP is promising to cut Canada's overall greenhouse gas emissions by 40 per cent over the next decade, or roughly 280 million tonnes from current levels.

 

At $45 a tonne in cap-and-trade penalties, that's billions of dollars a year someone would have to pay.

 

Many of the country's largest polluters have long said that if they are going to get hit with emission penalties, they would prefer a cap-and-trade system to a flat carbon tax. It gives them more flexibility.

 

Still, it is unlikely any party in power would hit Canadian industry with a cap-and-trade system or any other substantial environmental tax burden unless the U.S. also subjects its businesses to a similar regime.

 

And with the U.S. economy in the dumps, that likely won't be anytime soon.

 

The NDP platform:

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;


We will work closely with the Obama administration in Washington to ensure a coordinated response to climate change, and we will seek at every opportunity to advance an integrated continental cap-and-trade system that ensures a level economic playing field for North American businesses.

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