Liberal climate plan looks to guarantee a carbon price, no matter who is in power
'It is something that I think makes a lot of sense,' says energy industry executive
The concrete industry is known as one of the hardest sectors to decarbonize because of the extremely high temperatures — between 1,400 and 1,500 C — and the chemical process used to create the product.
There are many ways that concrete facilities can cut down on their emissions, but they all come with a price tag.
Spending that money gets easier to do if a heavy-emitting industry knows it will save in the long run — say, with a rising carbon tax in Canada that would make it costly not to change. The problem is there's always the risk that a change in government or a shift in political attitude can result in the price of carbon being reduced or wiped out altogether.
The uncertainty is why some companies are hesitant to spend hundreds of million and sometimes billions of dollars to slash greenhouse gases.
The federal government is now moving toward providing a guarantee of sorts, for firms that want to see the carbon tax climb to the levels the government has forecast. But with few specifics, it's still unclear how well the approach would survive a change of government.
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'An innovative approach'
The proposal was included in the new emissions reductions plan unveiled on Tuesday, although details are scarce.
It would provide a fixed carbon price over a time period, known as carbon contracts for differences (CCFD). The federal emission plan notes CCFD "enshrine future price levels in contracts between the government and low-carbon project investors, thereby de-risking private sector low-carbon investments."
While it's relatively new in policy circles in Canada, CCFD are already in use in Europe.
"It's significant. It's an innovative approach and one that will certainly make a difference," said Adam Auer, the vice president of environment and sustainability for the Cement Association of Canada.
The policy could encourage companies to invest in new infrastructure, substituting fossil fuels, integrating lower-carbon materials into cement, and developing carbon capture and storage technologies, among others.
While CCFD is not a silver bullet, Auer said it would provide more predictability as companies consider making big capital investment decisions.
"You need to understand whether you're going to save more than you spend," he said.
Next month, the federal carbon price rises another $10 to $50 per tonne of emissions produced and will increase further to $170 a tonne by 2030.
Energy giant Shell already has experience with CCFD as part of its offshore wind projects in the U.K.
"It is something that I think makes a lot of sense," said Wael Sawan, the company's integrated gas, renewables and energy solutions director, in an interview.
"The principle of creating more certainty for investors to be able to invest the much needed capital is an excellent thing," he said.
There is merit to the policy, said Tristan Goodman, president of the Explorers and Producers Association of Canada, because "Investor certainty is the most critical thing" to actually reduce emissions.
How it could work
The mechanics of the government's proposal are unclear, but this type of policy was examined in a C.D. Howe Institute report last year by Dale Beugin, vice president of research and analysis at the Canadian Climate Institute, and Blake Shaffer, an assistant professor at the University of Calgary.
They propose the Canada Infrastructure Bank (CIB) create a form of insurance for future carbon pricing policy. Should the federal government relax or remove carbon pricing, the CIB would take the loss
For instance, if a manufacturing plant wants to build a carbon capture facility, it could sign a CCFD guaranteeing a carbon price of $170 per tonne in the future. The risk that the carbon price might change would be shifted from the company to the CIB, which would likely provide financial compensation if a change happened.
"It's a way to make private markets and private investment work better alongside that carbon price," without picking winners and losers, said Beugin in an interview.
Besides exploring CCFD, the federal government said it will also explore "legislative approaches to support a durable price on carbon pollution."
One of the unknowns with CCFD is how difficult it would be to cancel the contracts, if there were a change in government.
Some Conservative leadership candidates, like Pierre Poilievre, are campaigning against the federal carbon tax.
"In theory, governments can make laws and do what they want around contracts," said Sara Hastings-Simon, an energy systems researcher and an assistant professor in the School of Public Policy and the Department of Physics and Astronomy at the University of Calgary.
She points to similar examples of how Alberta Premier Jason Kenney decided in 2019 to honour wind and solar contracts that the previous NDP government had signed, while Ontario Premier Doug Ford tore up similar contracts that same year.
"That would introduce all kinds of risk and really create an environment that's not friendly to business and investment," said Hastings-Simon.
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