Canada has no choice but to implement a national hard cap-and-trade system on carbon that would set uniform standards for all industries and provinces, says a government advisory panel.

The report, by the National Round Table on the Environment and the Economy, has been a year in the making and gives a detailed road map for meeting Ottawa's greenhouse gas targets in a manner it says is the most efficient and least costly.

The report says so-called intensity targets, which the government of Prime Minister Stephen Harper has recommended as the way forward until at least 2017, won't work and that Canada should put in place a hard cap regime on emissions by 2015, with auctioning of carbon permits to businesses by 2020.

It also rejects the controversial carbon tax proposed by former Liberal leader Stéphane Dion, and now in place in British Columbia as an interim measure, as less effective than cap-and-trade, although both involve putting a price tag on carbon.

But the strongest message from the report is that Canada needs to move now or face dire consequences — environmental, but also economic.

Round table chairman Bob Page says the U.S. under President Barack Obama is moving quickly on capping emissions and will hammer Canadian exports if Canada does not follow suit.

"It is the most serious protectionist challenge we've had to face," he told a news conference Thursday. "Now we're going to see in place of the softwood lumber issue, we're going to see the issue that cuts right across manufacturing in Ontario and Quebec, and natural resource products like the oil sands in Alberta and Saskatchewan ... those products will be subject to a carbon intensity surcharge at the American border" unless Canada meets new American standards.

Alberta won't like it, but the oil ands producers are likely more concerned about being shut out of the U.S. and possibly world markets, said Page, a professor of sustainable development at the University of Calgary.

Unified policy urged

The report says it is imperative that Canada moves from the patchwork approach adopted by different provinces and Ottawa and have a unified policy with identical standards across jurisdictions and industries.

And it says it is critical that Canadian policy be compatible with that of its largest trading partners, particularly the United States.

The cap-and-trade system is designed to put a price on pollution, but instead of taxing energy use by individuals directly, the cost is borne first by large emitters, who are expected to pass it on to consumers. Emissions permits can be traded on an open market between firms that need extra quota and those who have quota to sell.

It will not be painless, involving a major transformation on the cost, the usage and even the nature of energy in Canada.

"The scale of transformation to the Canadian energy system ... should not be underestimated," says the report.

"Greenhouse gases are so widely embedded in the energy we use that to significantly reduce emissions will have wide-ranging economic and social implications."

Still, round table president David McLaughlin said the Canadian economy will continue grow through the transformation period and that new industries will be created.

'Change behavior'

The report estimates gasoline prices could rise by 21 cents a litre above what they might have been by 2020.

The economy in general will pay a price in terms of slower growth. The report estimates gross domestic product would rise by 34 per cent by 2020 under the plan, and 39 per cent if nothing is done.

By 2050, the differential would be the equivalent of 11 percentage points in GDP growth.

McLaughlin said although change will be difficult, it is necessary.

"To achieve our environmental targets, we need to change behaviour in order to foster the kind of innovation to get that low-carbon technology in place to reduce emissions," he said.

The Harper government has set a target of reducing emissions 20 per cent below 2006 levels by 2020, and by 65 per cent below by 2050.

The targets have been criticized by environmentalists as overly modest, although the round table does not offer an opinion on the question.