As the dust continues to settle on last week’s tabling of Budget 2017, we’re digging into what it might mean for implementation of Canada’s new national climate plan. As we’ve said before, Canada’s first ministers covered a lot of ground on climate and energy issues last year — but implementation and coordination requires money, so we had big expectations that this year’s budget would deliver the resources necessary for ongoing climate policy progress.
Columnists appear somewhat miffed that the most surprising thing about last week’s budget is that it contained so few surprises. Shortly after the budget was released, commentary began characterizing it as a “wait-and-see” or “placeholder” plan. However, we’re seeing the budget in a different light: we’re glad the federal budget stays the course on climate action, especially implementation of the Pan-Canadian Framework on Clean Growth and Climate Change, the national climate change strategy finalized last December.
With $650 million in new funding (over 5 years) for climate policy implementation beyond last year’s sizeable investments, this budget makes a set of smart investments to further Canada’s climate agenda. It contains allocations to implement policy commitments made last year, like a national coal phase-out ($11.4 million over four years, starting in 2018–19), and a national clean fuels standard ($17.2 million over five years, starting in 2017–18). This is money for Environment and Climate Change Canada to do the necessary, unglamorous work of policy change: to conduct technical reviews, write the regulations, and coordinate. It also allocated $100 million over the next 11 years to support smart grid, storage and clean electricity technology demonstration projects, and extended the Accelerated Capital Cost Allowance to a broader range of geothermal projects.
The budget also made significant commitments to deploying renewables in remote communities and to accelerating efficiency in the built environment — our colleagues Dave Lovekin and Karen Tam Wu will explore those commitments in future blogs.
Beyond those points, three items stood out for us: changes to the Low Carbon Economy Fund, details on the national carbon price, and investments in goods movement. We unpack each of these three issues in more detail below.
The Low Carbon Economy Fund gets an extended shelf life
In recognition of the fact that it plans for larger expenditures in later years, the budget has been characterized as a “list of decisions to be made later.” This theme was present on the climate file too, most notably with the decision to extend the $2 billion Low Carbon Economy Fund from two years to five at the same dollar amount. This change led some to criticize the budget as an “abdication of our responsibility to future generations.”
While it’s true that dragging out spending timelines increases the risk that badly needed investments in emissions reductions will be unnecessarily delayed, the risk of a speedy misallocation of funds also shouldn’t be dismissed. As with most things climate, we need to ask: does this help us get further, faster, in the long-run?
From a climate perspective, a longer-term orientation for investments can make a lot of sense – especially when thinking about multi-year policy commitments, like accelerating energy efficiency programs or building electricity infrastructure.
While the work of addressing climate issues can hardly bear delay, it’s important projects be chosen carefully, in collaboration with affected stakeholders — including on a nation-to-nation basis with Indigenous peoples. So, in our view, it’s not unreasonable that the $2 billion Low Carbon Economy Fund has been altered to extend over five years. We hope this leads to strategic investments in projects or programs that substantially reduce emissions and support rapid implementation of new policy measures.
Next steps on the national carbon price
We were really pleased to see the government offer a few more details on how it intends to implement the national carbon price backstop — set to begin at $10 per tonne of carbon pollution in 2018, and to escalate by $10 per year until 2022. The goal of the backstop is to create a safeguard that ensures all provinces and territories have a minimum price on carbon in place next year.
In a practical sense, the backstop may be applied in relatively few jurisdictions. The federal government has offered enormous flexibility to provinces and territories to design individually tailored carbon pricing systems — so long as they meet or exceed the benchmark price — and to manage the revenue as they see fit. We look forward to the introduction of legislation to establish the benchmark prior to mandatory compliance in 2018, and encourage the government to ensure its legislation requires the price be indexed to inflation, since this will result in a stronger price signal to the market over time. It’s worth noting that the Western Climate Initiative (of which Ontario and Quebec are members) indexes its price to inflation, but that the B.C. carbon tax does not.
The federal government also announced in the budget that they will be releasing a consultation paper in the coming months that includes the technical details of the national carbon price. We look forward to seeing those details, but hope the paper will outline more than just the technical specifications of how the benchmark is set. In particular, we’re keen to understand planned activities to lay the groundwork for a successful federal-provincial-territorial program review in 2020.
An early idea for consideration: we encourage the federal government to design a transparent framework prior to the 2020 review, in consultation with the provincial and territorial governments, that would facilitate a fair and accurate assessment of each jurisdiction’s progress on carbon pricing and emissions reductions. 2020 is not far off, and the methodologies for the review will need to be developed well in advance in order to facilitate a productive conversation between governments. As evidenced by the December first ministers’ meeting, things can go off the rails without some structure. To avoid any similar distractions, the first ministers should lay out — and agree on — a fair and transparent assessment framework well in advance of the carbon price review.
Accelerating decarbonization of goods movement
In addition to economy-wide measures like carbon pricing, Budget 2017 also proposed investments in major emitting sectors, like transportation. In many Canadian provinces, including Ontario and Quebec, transportation is the largest and fastest growing source of emissions.
Budget 2017 allocated $17.2 million over five years, starting in 2017–18, to Environment and Climate Change Canada and Transport Canada to develop and implement key policies, including a clean fuel standard and heavy-duty vehicle retrofit regulations. It also identified goods movement as a major challenge for Canada, and committed to seek efficiency improvements — in part by addressing freight bottlenecks across the country — through the creation of a new National Trade Corridors Fund. This fund will be allocated $2 billion over 11 years, and its investments will “target congestion and inefficiencies…along the busiest rail and highway corridors around the Greater Toronto Area and other urban centres across the country.”
We were delighted to hear this news, as heavy-haul trucking has grown substantially as a source of emissions at home and abroad. It currently represents the fastest growing sub-sector of transportation emissions in Canada, and is projected to become the largest energy-consuming segment of transportation globally by 2030. In Canada, between 1990 and 2014, freight accounted for 32 Mt of the total 55 Mt increase in emissions from the transport sector.
Given that Budget 2017 aims to improve Canada’s goods movement network, we encourage the federal government to ensure these investments also result in a net-benefit to Canada’s climate change plan. In particular, we encourage the federal government to work in conjunction with Ontario and Quebec to develop North America’s first low-carbon highway between Windsor and Quebec City. Developing a “low-carbon highway” would involve building out alternative fuelling infrastructure — like electric vehicle fast-charging, compressed natural gas or hydrogen stations — for personal and commercial transportation along the route.
Last week’s federal budget allocated $120 million over 11 years to support exactly these kinds of technology demonstration projects, so we think it’s a no-brainer to create a link between those investments and other policy objectives on the goods movement and climate files.
Staying the course on climate action
More than ever, the world needs Canada’s climate leadership. In a turbulent time for international affairs, Budget 2017 shows Canada is a forward-thinking nation that remains committed to its newly established climate policy direction. We shouldn’t underestimate the power of that signal to investors, especially as nations compete for the rapidly growing global demand for clean energy solutions.
We’re pleased Budget 2017 demonstrates the federal government’s ongoing commitment to successful implementation of Canada’s national climate plan, and look forward to working with key ministries as they deploy these new resources to unlock emissions reductions across the economy.