Earlier this month, the federal government announced its Pan-Canadian Framework on Climate Change, a plan to start implementing Canada’s commitments under the 2015 Paris Climate Agreement. The framework was fully supported by most provinces. Saskatchewan stood alone in opposing the carbon-pricing element of the agreement, with Manitoba appearing to link its endorsement of the framework to an agreement on health care funding. The federal government announced its intention to implement the carbon pricing mechanism over the objection of Saskatchewan, essentially by imposing a federal carbon tax in the province and returning the revenues to the province. As a result, we now have, for the first time in Canada, a federal provincial framework for meeting our international commitments to address climate change.

Nova Scotia supported the Pan-Canadian framework, after having only weeks before walked out of the negotiations over objections to the carbon pricing. In this post, I will explore the key elements of the framework as they apply to Nova Scotia, and consider how Nova Scotia’s commitments measure up in light of the Paris Climate Agreement.

It is important to consider Nova Scotia’s commitments under the framework in light of what it has already achieved. In short, Nova Scotia has, in the past decade, moved from climate mitigation laggard to a leader in emission reductions in the electricity sector, while making more limited progress in other areas (such as improving the energy efficiency of new buildings and of cars). Nova Scotia was the first province to impose binding emission reduction targets on the electricity sector, and it imposed aggressive renewable energy targets for 2015 and 2020. It has become a leader in conservation and efficiency in the electricity sector, largely through the creation of an independent efficiency agency in the form of Efficiency One.

The Pan Canadian framework recognizes Nova Scotia’s past efforts to reduce emissions from the electricity sector, and it offers Nova Scotia considerable flexibility going forward. This flexibility can be used to further accelerate progress, but this is by no means guaranteed in light of commitments to date. Much will depend on how key elements, such as the equivalency agreement on coal and the Cap and Trade system are implemented, and whether they are supported by further regulatory action and incentives to complete transition from fossil fuels to renewables. I will now discuss each of the key elements in a bit more detail.

The first key element of the framework is the agreement on the phase out of coal. Rather than implement a complete phase out by 2030, as is the case in many other provinces, Nova Scotia has instead committed to achieving the emission reductions that would be associated with a full phase out of coal, but has retained the flexibility to keep some coal plants in operation past 2030 as long as their use does not compromise the emission reduction target. The basis for this was essentially that a full phase out of coal by 2030 would require a switch to natural gas, whereas the preferred approach for Nova Scotia appears to be to retain some coal and use this flexibility to switch directly to renewables, thereby eliminating the need for investments in natural gas infrastructure that would then risk becoming stranded assets.

So far so good. The underlying assumption of this approach is that we cannot reasonably get to 100% renewables by 2030, either because we lack the renewable production capacity to meet peak demand (NS’s peak demand is currently in the winter), or because we cannot match supply and demand with the renewable energy mix and grid connections we have without using some coal as a backup. This has been the subject of debate every since Nova Scotia began its efforts to integrate more and more renewables into the grid. The answer will likely depend on a variety of factors, such as the ability to utilize hydro power to back up more intermittent sources of electricity, the distribution of wind and solar across the province, the use of smart grid technology and storage, improvements to the grid and utilizing and/or improving our connections to New Brunswick and Newfoundland.

As we continue to integrate more and more renewable energy into our energy mix, the answers to some of these questions will become clearer. A critical issue in the implementation of the framework in Nova Scotia will be to ensure there continue to be adequate incentives for Nova Scotia to maximize the use of renewables and to complete the transition to renewables as quickly as practically possible. We need to build into the system opportunities and incentives for continuous improvements. This becomes particularly clear when we consider Canada’s commitments under the Paris Climate Agreement, discussed at the end of this post.

This brings us to the second key element of the framework, the carbon pricing commitment, and the specific approach Nova Scotia has selected. Nova Scotia has chosen a Cap and Trade system with free allocation of allowances, and without linking to other jurisdictions. What this means for the electricity sector is that it will be granted free allocations (presumably up to the limits it is already planning to achieve under the new coal equivalency agreement, yet to be finalized). This would mean that any incentive for this sector to do more would either be a result of unilateral regulatory action by the province to require an acceleration of the transition, or through the opportunity for NSPI to sell its free allocations (that it would not need if it achieved additional reductions) to other NS sectors caught under Nova Scotia’s Cap and Trade system.

A critical design question will be what other sectors to include in Nova Scotia’s Cap and Trade system. Other sectors that contribute to Nova Scotia’s GHG emissions include transportation, non-electric heating of residential and commercial buildings, agriculture, oil and gas, mining, and manufacturing.  It is not clear at this point that all these sectors will be included in the Cap and Trade system, though agriculture is not included in any of the provincial pricing mechanisms, so it is unlikely to be included in Nova Scotia. Inclusion of each of these sectors in the system will be the first issue. For sectors not included, regulatory measures and other incentives will have to be implemented to ensure they do their fair share toward GHG emission neutrality.

Beyond the basic choice about inclusion in the system, to understand the implications of Nova Scotia’s Cap and Trade system for each sector and for Nova Scotia’s overall effort, the following are key:

• How much free allocation will/should each of these sectors receive? Are there sectors that can/should not receive free allocations?
• What measures can each sector take to reduce emissions?
• What costs and economic opportunities are associated with the emission reductions in each sector? Who will bear the costs? Who will benefit?
• What efforts beyond the Cap and Trade system are planned by the province (either on its own or in coordination with the federal government or other provinces) to assist with, encourage, or require efforts to transition to GHG emission neutrality?

For two of the key sectors, transportation and heating, it seems clear that the solution rests with electrification. The Cap and Trade system alone is unlikely to facilitate such a transition, though by limiting the free allocation of credits, and by restraining them more and more over time, these sectors can be encouraged to support this transition. It will be critical for governments to send clear short and long-term signals and to take additional measures to support this transition. Among the measures will be building codes that push and require best practices in new construction and renovations, incentives to electrify heating while utilizing storage and smart grid options, charging stations for electric vehicles, and incentives to utilize the storage capacity of vehicles to accommodate more renewable sources of electricity.

For the remaining sectors, including agriculture, manufacturing, oil and gas, and mining, it is less clear where the opportunities to achieve reductions are. Certainly, conservation and efficiency gains can be encouraged through an appropriate limit of allocations under the Cap and Trade system. Some aspects of these sectors may be amenable to electrification. An interesting question with respect to oil and gas will be how the emissions from this sector are treated as Nova Scotia completes its transition to renewables, and the fossil fuels extracted are increasingly used for export. Similar questions may arise for emissions from mining and manufacturing for export purposes.

Ultimately, how sectors are treated should be decided based on a number of factors. Is the sector able to pass on the cost or will the sector have to bear the cost? How important is the sector to Nova Scotia’s economy now? How important is it expected to be in 2030? Does the sector have a future in a GHG emission neutral world?  In this regard, it is clear, for example, that fossil fuel extraction is a transition industry at best. Sectors such as agriculture are clearly part of our future, but it is unclear how it will get to GHG emission neutrality. Other industries may or may not be part of the future depending on their ability to adjust to a GHG neutral world. Some are important parts of our economy today, others are not.

The effectiveness of the Cap and Trade system will depend in large part on the allocations granted to each of the sectors. It seems clear that the electricity sector will have opportunities to achieve reductions beyond its allocations, meaning it will have the opportunity to sell allocations to other sectors who will may face difficulties achieving emission reductions. The experience from elsewhere (such as the EU ETS) is clear. Those who are caught under a Cap and Trade system have an incentive to underestimate their ability to achieve emission reductions. Furthermore, governments sometimes lack the expertise to challenge these claims. The result is an over-allocation, which fails to provide the incentive needed to push all sectors to innovate and seriously pursue opportunities to transition to GHG emission neutrality. The ability and willingness to make adjustments as needed will be critical to the success of the Can and Trade system.

In short, the Pan Canadian Framework contains important elements of a successful strategy for Nova Scotia to continue on its path to GHG emission neutrality and to accelerate the transition. There is every reason to expect that we will continue with efforts to increase our reliance on renewable energy for electricity. However, important work remains to be done. The allocations under the proposed Cap and Trade system will be critical. They need to be carefully designed to provide adequate incentives to continue and accelerate the transition from fossil fuels to renewable energy.

A price on carbon alone, especially through a Cap and Trade system with free allocations, will not ensure the needed transition. Other incentives and regulatory measures will be needed. Nova Scotia had already demonstrated the benefits of regulatory action through its regulations on GHG emissions in the electricity sector, and its use of targets for renewable energy, new buildings, efficiency, etc., through Nova Scotia’s innovative Environmental Goals and Sustainable Prosperity Act. Incentives for innovation in support of this transition in all sectors of the economy will be another key element, as will continued efforts to improve the efficient use of energy in Nova Scotia.

Having considered the Pan Canadian Framework from a Nova Scotian perspective, it is important to view Nova Scotia’s contribution to the national plan in the context of the global effort to address climate change. The Paris Climate Agreement, which was negotiated just a year ago, was ratified by Canada this summer, and came into force in November, commits the global community to keeping global temperature increases to well below 2 degrees while making efforts to keep them to 1.5 degrees. It does this by mandating all member States to set nationally determined mitigation, adaptation and finance contributions that will be subject to a 5 year review for global adequacy along with a commitment from States to increase their ambition over time.

Key elements of the Paris approach to climate mitigation are the combination of nationally determined commitments, global goals and oversight, and a commitment by States to increasing ambition over time. In essence, in return for having control over national commitments, States agreed to those commitments serving as a floor rather than as a ceiling. The current 2020 and 2030 commitments were assessed by UNEP in the lead up to Paris, and were found to be inadequate by around 15 GT by 2030. This significant gap was formally acknowledged in Paris. Parties are expected to make up this gap by increasing their 2020 and 2030 contributions beyond their current nationally determined contributions. What this means for Canada is has in fact committed to do more than meet its current 2020 and 2030 targets.

So how does the Pan-Canadian framework measure up? Canada’s business as usual emissions for 2030 without climate policies and measures are estimated to be around 815 MT. Climate policies and measures currently in place and those announced as part of the Pan Canadian framework (including HFC regulations under the Montreal Protocol on Ozone Depleting Substances) are expected to reduce Canada’s 2030 emissions to about 565 MT. Canada’s current self-imposed 2030 target is 523 MT. This target is based on the nationally determined contribution filed by the previous conservative government. Canada’s target has not changed since the change in government in the fall of 2015.

Where does this leave Canada? With full implementation of the Pan Canadian Framework, we will be well on our way toward our 2030 target (having previously missed our Kyoto target, and our previous government’s 2020 target). We will, however, require additional efforts to be put in place to meet our 2030 targets, and we are expected to and have promised to do more. As one of the few developed countries that failed to meet its Kyoto target and is unlikely to meet its 2020 targets, and as a developed country with among the highest per capita emissions and highest capacity to reduce emissions, the expectation is that Canada will make a significant contribution toward closing the 2030 emissions gap.

In short, Nova Scotia needs to view its approach under the Pan-Canadian Framework as a floor, not a ceiling. It should move to implementation in a manner that makes it clear that more is expected, and move to accelerate action as opportunities arise. Regulatory action for key sectors, incentives, and adjustments to the Cap and Trade system will be key for effective implementation consistent with our Paris commitments and our moral obligation to the rest of the world and to our own future.

 

Meinhard Doelle,

Professor, Schulich School of Law

To download some of my other publications on climate change, see http://ssrn.com/author=715387.