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The messy mathematics of British Columbia’s CleanBC plan

Climate change is a pre-eminent topic these days, especially as evidence accumulates that the effects of global warming are already being felt. Thus the B.C. government’s timing, in releasing its CleanBC plan late last year, was impeccable.

Climate change is a pre-eminent topic these days, especially as evidence accumulates that the effects of global warming are already being felt. Thus the B.C. government’s timing, in releasing its CleanBC plan late last year, was impeccable.

The primary purpose of the plan is to speed the shift to a lower-carbon economy, mainly through the electrification of transportation, buildings and industrial activity, along with continued efforts to improve energy efficiency in all sectors.

CleanBC’s aspirations and intentions are laudable, if too inwardly focused. And our organization, the Business Council of BC, is working with the province to flesh out possible strategies to advance toward the plan’s goal to slash greenhouse gas (GHG) emissions by 40% from 2007 levels by 2030, without killing the natural resource, manufacturing and transportation sectors that are reliant on energy inputs and form the bedrock of the province’s export economy.

But architects of the CleanBC plan have underestimated the difficulty of sharply lowering greenhouse gas emissions, particularly against the backdrop of a rapidly expanding population. Among other things, policy-makers have paid little attention to the marginal abatement cost (MAC) of curbing emissions.

The MAC is an estimate of the cost of trimming GHG emissions by the equivalent of one tonne of avoided carbon dioxide. From an economy-wide perspective, this cost may arise due to an explicit tax on emissions (as we have in B.C.), the adoption of new regulations and standards or the need for government to finance subsidies and other incentives instituted to encourage people and businesses to change their behaviour.

Economists sometimes distinguish between two kinds of abatement costs: static and dynamic. Static costs are those incurred in the short term (typically a few years), or over the life of a proposed project that will generate emissions. Dynamic costs incorporate the “spillover” impacts of regulatory interventions and new technologies that may drive down the actual MAC over time through induced innovation, learning-by-doing effects or other factors. In the climate policy context, dynamic abatement costs are assumed to be lower than those based on static cost models.

Since 2007 – the base year for the emissions targets in CleanBC – the province’s recorded GHG emissions have barely budged, dipping by less than 4%. In part, this reflects B.C.’s growing population and economy. What some may find puzzling is that for more than a decade, B.C. has operated with the highest carbon tax in North America and has taken many other actions to tamp down GHG emissions. Yet despite these steps, the trajectory of emissions shows only a very slight trend decline.

Now that CleanBC has been announced, how do things look? In our judgment, B.C. faces significant headwinds that will hamper progress in tackling GHG emissions. Of greatest importance, the province has very few low-cost abatement options at its disposal, for two main reasons.

First, B.C. differs from almost every other nation and subnational jurisdiction that has been able to meaningfully reduce GHG emissions in one telling way: our existing 95% “clean” electricity system. From the United States to Ontario to the U.K., most of the jurisdictions that have substantially reduced emissions have done so in large measure via “fuel switching” in the electricity sector, usually by replacing coal and oil with natural gas and renewables. That isn’t possible for British Columbia: we cannot take advantage of the commonly used carbon abatement option of “greening” electricity.

Second, as noted above, B.C. has had a carbon price in place for over a decade, with its economy-wide carbon tax presently set at $40 per tonne of carbon-equivalent emissions – slated to rise to $50 per tonne by 2021. This is the steepest carbon charge in North America (in a majority of American states, the effective carbon price today is close to zero). A decade of experience with the carbon tax implies that most of the inexpensive emission reduction options have already been implemented in B.C., as households and businesses have incrementally responded to the escalating carbon levy.

The challenges of the energy transformation envisaged by the BC NDP government are far-reaching. True, over time British Columbia may gain from the global shift to a lower-carbon future, since the carbon content of our exported goods tends to be lower than that of other countries producing similar goods. But even so, we suspect that B.C. residents will pay a heavy economic price if government is committed to engineering large absolute declines in the province’s direct GHG emissions within the short time span of 12 to 15 years. The hard reality is that, compared with many other jurisdictions, B.C. has few low-cost opportunities available for carbon abatement. •

Jock Finlayson is the Business Council of British Columbia’s executive vice-president and chief policy officer; Ken Peacock is the council’s chief economist.