The inflation election

(Originally published in Le Devoir on September 29, 2022. The original has been updated to reflect the results of the October 3 election.)

The 2022 Quebec election was launched against a backdrop of soaring inflation. All parties proposed policies to address the concerns of families struggling to make ends meet, but, some of the best solutions will come from what may seem like a surprising direction: climate policies.

To reduce the cost of living for families, now and in the coming decades, Quebec can act on two fronts: accelerate electrification to significantly reduce families’ energy bills, and considerably increase adaptation efforts to reduce the accelerating costs of climate damage.

Electrify (almost) everything

Much of the energy we use comes from highly volatile fossil fuels, and their costs are often influenced by events beyond our control, such as Russia’s invasion of Ukraine. To reduce our dependence on volatile fossil fuels, we need to make a significant and rapid energy transition. This means producing more electricity from wind and solar, and using that clean electricity to power our transportation and heating rather than fossil fuels.

While Quebec enjoys clean electricity production thanks to its abundant hydro, over 54 per cent of the province’s total energy consumption still comes from oil and fossil gas. Massive electrification of transportation and heating, as electric vehicles and highly efficient heat pumps become more widely available, would lower total household energy bills as electricity is much more efficient and affordable than fossil fuels. Ultimately, more than half of the province’s climate pollution would be eliminated.

Consider the Inflation Reduction Act in the United States. Resources for the Future, an independent non-profit research group based in Washington D.C., projected electricity rates for a series of scenarios under the act, taking into account the variability of future fossil fuel prices, investment and technology costs, and the passage of specific provisions in the legislation. They determined that by switching to clean electricity, the average American family could reduce their electricity costs by $175 to $220 per year and also be protected from the volatility of natural gas prices.

In Quebec and Canada, although the investments required to increase generation and transmission capacity may increase electricity rates, our analyses show that the share of household spending on energy consumption, from all sources, will decrease significantly.

Adapt or…pay more, much more

Unfortunately, it’s already too late to entirely avoid the warming that scientists have been warning us about. In Quebec, accelerating climate change is costing households dearly, and the costs will only increase, hitting families in many different ways. 

There is the direct cost of damage from extreme events to homes and other property, and the added cost of rising insurance premiums. Even if households are insured, they’ll still be stuck paying some of the bill.

As the latest report from the Canadian Climate Institute shows, as climate change and its impacts on the Quebec economy intensify, some of the indirect costs are less apparent to households. Economic slowdowns, tax increases to pay for climate-related disasters, job losses, and increased costs of goods due to disrupted supply chains will have a very real impact on households.

The question is no longer can we afford to act on climate change? We simply can’t afford not to.

The cost-of-living crisis was on the ballot this election, but the role of fossil fuel volatility and climate damages in driving that crisis are not well enough understood, nor are the ways that good climate policy can protect Quebecers from further cost increases. Switching from volatile fossil fuels to increasingly affordable clean electricity, while increasing the resilience of our systems to avoid endless repairs, can have a real impact on the bills and well-being of Quebecers for many elections to come.

Canada GHG emissions – oil & gas sector needs a cap on its emissions

By the Canadian Climate Institute and Net-Zero Advisory Body

If Canada wants to achieve its 2030 target for greenhouse gas emissions, the federal government must follow through on its proposed cap on oil and gas emissions. But the details matter, and getting the design right is critical.

Emissions in the oil and gas sector are out of sync with a net-zero pathway. Unlike most other  heavy industry sectors like steel and cement, its emissions are still rising – a trend that we can no longer afford if we want to avoid the worst impacts of climate change. Between 2005 and 2019, emissions from oil and gas rose by almost 20 per cent.  Without a cap and mandated reductions in place, current policies are not stringent enough to drive the emissions reductions necessary for Canada to meet its climate goals, and contribute our share of the solution to the global problem of a heating planet. 

At the same time, investment planning in this sector in today’s global context is particularly tricky. In the short-term, Europe faces an energy shortage while they step up efforts to reduce reliance on fossil fuels, conserve energy, and build more renewable power projects. But in the medium and long-term, declining global demand for oil and gas risks increasing the total costs of Canada’s net-zero transition. Investments in carbon-intensive projects risk “locking-in” emissions, and every dollar spent on infrastructure that is incompatible with pathways to net-zero will cost taxpayers more in the long run.  As the Net-Zero Advisory Body (NZAB) explains, “dead-end” solutions, like new high-carbon oil and gas projects that will continue to operate for decades to come, will make it more expensive for Canada to achieve its emissions target or put it out of reach altogether. More emissions in oil and gas will force other sectors to contribute more reductions. The oil and gas sector also has the power to leverage its own expertise, resources, and workforce to implement decarbonization solutions and diversify its operations. Inaction costs more than action. Oil and gas producers have the wealth to contribute to the societal imperative to reach net-zero.

A cap gets to the heart of these unique challenges. It provides greater certainty about an emissions pathway for the oil and gas sector, creating clear expectations for the sector and a credible mechanism to make sure that new investments and new projects in the sector are compatible with net-zero pathways.

Nevertheless, how the cap is designed matters.

First, the cap should deliver real, absolute emissions reductions in the sector, not simply improvements in the emissions intensity of fossil fuel products. This means compliance flexibility mechanisms, like offsets, that reduce the certainty of achieving permanent emissions reductions should be very limited and available only in the short term. As the NZAB outlines, a net-zero pathway for the oil and gas sector should be consistent with an economy-wide pathway to net-zero, meaning it cannot depend on reducing emissions from other sectors.

Second, a cap should not distract from the imperative to reduce methane emissions. Methane emissions are severely undercounted and methane has a heat-trapping potential more than 80 times greater over a 20-year span than carbon dioxide. Thankfully, methane emissions are  some of the lowest cost emissions reductions available. Increasing the stringency of methane regulations would also relieve pressure on the cap; bringing the carbon price in the sector in closer alignment with the rest of the economy, lowering the cost to achieve Canada’s climate goals. Canada should be taking cues from our southern neighbour whose recently passed Inflation Reduction Act will drive emissions reductions in key sectors, including methane emissions, to ensure they will be competitive in a net-zero world. 

Third, policy design should seek to minimize costs for firms, protecting competitiveness and avoiding “leakage” of emissions to jurisdictions with weaker climate policies. The government has already indicated it will use market-based instruments that will minimize the costs of achieving the sector’s emissions pathway. Moreover, the Canadian Climate Institute’s response to the government’s discussion paper on the cap provides additional options such as avoiding layering multiple policies and compliance mechanisms. 

A net-zero pathway for Canada’s oil and gas sector is key for Canada’s climate goals. A cap on the sector’s emissions can deliver that pathway. If designed well, a cap can also support transformation in the sector that will position it well not only to contribute to our emissions reductions here at home, but to compete in a net-zero world. 

There’s no time to waste.

We don’t need NORAD to see this threat

The security of the Canadian Arctic has been on the radar of everyone from defence analysts to doomscrollers since Russia’s devastating invasion of Ukraine. Hypothetical scenarios in the news have ranged from Russian submarine and fighter jet incursions to Russian soldiers making landfall in the Canadian Arctic.

These armed-conflict what-ifs miss the real and present danger to Northern Canada: accelerating climate change.

Most communities in Northern Canada already lack access to basic infrastructure services like safe housing and reliable transportation to hospitals that people in the rest of the country take for granted. The North is warming significantly faster than the global average, so climate change represents an unparalleled threat to this already fragile infrastructure, with devastating consequences for Northern lives and livelihoods.

A new report from the Canadian Climate Institute evaluates the scale of the threat and recommends measures to counteract it.

True Northern defence

If Canadians have suddenly awoken to the importance of defending the North, the best course of action begins with working with Northerners to address the North’s dramatic infrastructure gap.

After decades of paternalism and neglect, the quality of infrastructure in the North is starkly worse than the rest of Canada. In Nunavut, 84 per cent of people are housing insecure. Rates of food security across the three Northern territories are 1.43 to 5.6 times higher than the Canadian average. Most Northerners do not have access to high-speed internet, and many communities lack dependable health and transportation infrastructures.

This infrastructure gap can result in cascading, costly, and dangerous failures. Last year, thousands of people in Iqaluit went without clean tap water for two months when the city’s water was contaminated with fuel. The community of more than 7,000 people had to rely on daily air shipments of bottled water while the city addressed the situation.

Climate change will make a bad situation far worse unless adaptation investments are transformed and scaled up. The Canadian Climate Institute’s newest report in its costs-of-climate-change series, Due North: Facing the costs of climate change for Northern infrastructure, concludes that all orders of government should set policies and make investments without delay to prepare for the impacts of climate change on Northern infrastructure.

Many of the infrastructure investments that Northerners are calling for, like reliable airports, can also fulfill defence ambitions. Functional seaports across the North benefit both communities and the Department of National Defence. And Northern and Indigenous businesses can benefit from Northern security infrastructure—for example, the federal government recently contracted the Inuit-led joint venture Nassittuq to help run the North Warning System, placing more control in the hands of Inuit rights holders.

Due North

It is time to give the North its due. Northerners are already seeing the impacts of climate change and the severe costs of being caught unprepared. A more secure North is possible, Northerners are ready to build it, and accelerating climate change means there’s no time to waste.

Indigenous knowledge points the way

Climate change is disproportionately impacting Indigenous people, communities, and territories—and Indigenous researchers and knowledge keepers are leading the development of land-based and culturally rooted responses. To amplify the crucial work of these researchers and knowledge keepers, the Canadian Climate Institute has published four new case studies in our Indigenous Perspectives series that showcase exemplary work on climate research and policy:

  1. In Gitxsan Rez-ilience: Understanding climate resilience as Naadahahlhakwhlinhl (interconnectedness),” Janna Wale examines how global warming is impacting the seasonal round of land-based activities that have sustained Indigenous Peoples since time immemorial. She draws on interviews and surveys with Gitxsan community members to propose a more holistic, practical, and strength-based understanding of resilience, or “rez-illience”—one that has Indigenous perceptions, values, and worldview at its centre.

    “The key, moving forward,” Wale writes, “is to approach resilience to climate change with the same strength of spirit that the ancestors embodied. Look to the teachings in the seasonal round and know that there is a time for everything. Look to the teachings of values and culture and know that resilience is built into Indigenous identities. Look at all we have been through as Indigenous people—and we are still here.”
  2. In ʔuyaasiłaƛ n̓aas, or Something happened to the weather: Applying the wisdom of Indigenous place names in a changing climate—lessons from the Ahousaht First Nation’s Land Use Vision process,” Tara Atleo looks at how Indigenous place names can inform land use planning processes through the identification of ecosystem services, culturally significant areas, and areas with specific vulnerability to climate change. Atleo suggests that through language and the stories, histories, and values it embodies, “we can better understand climate change and our response to it, within the living moral principles and teachings of effective stewardship, so that we might better strive for oneness with the environment around us.”
  3. A Two-Roads Approach to Co-Reclamation: Centring Indigenous voices and leadership in Canada’s energy transition” is a remarkable collaboration among 19 co-researchers, rights holders, and academics from Fort McKay First Nation, the University of Calgary, and the University of Waterloo. The case study presents and describes the process that informed the co-creation of a series of intercultural planning tools to prioritize Indigenous voices and leadership in Canada’s energy transition. “While Fort McKay co-researchers shared a unified voice that historic and contemporary mine reclamation and closure planning in their traditional territory does not currently meet the community’s land use needs,” the authors conclude, “the Co-Reclamation Project’s intercultural planning activities and meaningful inclusion of Fort McKay provided hope for improved reclamation outcomes for future generations.”
  4. Finally, “The Bagida’waad Alliance: Finding our way in the fog and charting a new course” by Natasha Akiwenzie is a moving work of Indigenous autoethnography. Natasha shares her story of personal reinvention in her move from fisher to climate educator in response to the dramatic impacts of warmer and windier weather on her life and livelihood in Neyaashiinigmiing, Ontario. 

It is notable—and for us, a point of pride—that all four of this year’s case studies were authored or co-authored by Indigenous women. This was not a deliberate choice when we selected these four case studies among the many excellent applications we received this year, but it does speak to the many ways in which Indigenous women in particular are stepping up and modelling the shared leadership and collective action that climate change demands of all of us. We can all learn much from leaders like these.

The Canadian Climate Institute is committed to ensuring that our work supports Indigenous self-determination, and that Indigenous ways of knowing, being, and doing are reflected in policy recommendations. We recognize that this work must be led by and for Indigenous people, and welcome this opportunity to showcase leading practitioners and researchers like those featured here. 

Shianne McKay is a member of the Canadian Climate Institute Council of Advisors, Senior Project Manager at the Centre for Indigenous Environmental Resources (CIER), and an Ojibway member of the Treaty 2 and 4 community and Pine Creek First Nation in Manitoba. CIER is Canada’s first Indigenous-directed environmental non-profit charitable organization. CIER was founded in 1995 by 10 First Nation Chiefs from across Canada. CIER supports Indigenous people and communities to be leaders of positive environmental change, using the best of Western and Indigenous knowledge to create a world that is in balance and supports the well-being of all living things. Since 1995, CIER has worked on 450 projects with over 300 Indigenous nations across Canada. 

David Mitchell is a Senior Communications Specialist with the Canadian Climate Institute and lives on Treaty 4 Territory in Saskatchewan. 

The gathering storm: Building climate resilience requires innovative financing

To avoid massive social and economic disruption, Canada needs to seriously ramp up climate change adaptation measures. Adaptation pays big dividends, yet the public and private funding needed to start to secure our homes, businesses, and communities has been scant.

So where will the money come from? We point to emerging innovations in sustainable finance that can help make up for lost ground and make Canada more resilient in the face of a rapidly changing climate.

Bracing for the storm

Canada’s changing climate, which is warming twice as fast as the global average, is a major social and economic threat. We are only at the beginning of rapidly growing costs of weather-related disasters across the country, including from floods, storms, heatwaves, and wildfires. If Canada fails to prepare for a climate whose volatility will only continue to increase, many aspects of life as we know it risk massive disruption. And the public and private economic costs of climate-related damages and losses will continue to mount, jeopardizing our economic and social stability.

The good news is that these negative outcomes are not inevitable. Adapting and building resilience to future shocks can help insulate people and communities from an increasingly unpredictable and inhospitable climate. If we can start to factor a changing climate into infrastructure decisions, the choices Canada makes in the coming years will have a huge impact on how much damage and disruption climate change inflicts on the country.

The bad news is that Canada is struggling to deliver.

Stark realities

Most climate change adaptation projects have long-term social and economic benefits that far outweigh their upfront costs, yet financing is still extremely hard to come by.  Adaptation projects carry significant upfront costs—particularly those that require investments in new infrastructure, such as seawalls, dams, levees, or flood-absorbing wetlands, or in making our existing infrastructure more resilient, including homes, buildings, bridges, roads, railways, harbours, and airports. Adaptation has struggled to find a place in government budgets—the traditional source of funding for infrastructure and other projects for the public good.

Case in point: the largest single source of dedicated public resilience funding is the federal government’s Disaster Mitigation and Adaptation Fund, for which the 2017 budget earmarked $2 billion over 10 years. The program was massively oversubscribed by provincial, municipal and Indigenous governments the first two years, forcing early closure to new applications. Over the past four years, only 13 per cent of government spending on climate change has been for adaptation. And the recent 2021 federal budget did not make any substantial new adaptation funding commitments. While government spending needs to increase, it is highly unlikely that the tens or hundreds of billions of additional dollars needed to address Canada’s adaptation gap will come from direct government investment.

Capital markets are a logical alternative, but private sector funding currently represents only about 1.5 per cent of all adaptation investments. Private investment in adaptation and resilience is a tough sell because it is difficult to capture financial returns for investors; most projects result in avoided costs that may happen far in the future—not a stream of immediate, steady, and positive cash flows. For upgrading the resilience of most public infrastructure, homes, and buildings in Canada, conventional private financing is not an option.

Innovating a way forward

So where will the financing for climate resilience come from? New innovations in sustainable finance may have some answers.

Sustainable finance refers to financial services and processes—such as sustainable investment funds and green bonds—that are specifically linked to advancing environmental and social goals. So far, almost all the focus in sustainable finance has been on ways to reduce greenhouse gas emissions. But as more leaders in governments, finance and business begin to understand the scope of the global climate change adaptation gap, this is expected to change quickly.

Here are three promising applications of sustainable finance for adaptation and resilience-building:

  1. Green bonds: Green bonds are issued to finance or re-finance new and existing projects with environmental and sustainability benefits. However, only a very small fraction of green bonds have been used for adaptation and resilience—from 2010 to 2019, only five per cent of all green bonds globally were linked in whole or in part to adaptation activities. The rapidly changing landscape of green bond guidance and certification frameworks has often omitted or underemphasized adaptation, and investors may be wary because they have little experience investing in resilience projects. The Government of Canada can help address this by explicitly making adaptation projects eligible in its own proposed 2021 green bond issue, as well as by making climate resilience an evaluation criterion for the certification of all projects financed by green bonds.
  2. Pricing and disclosing physical climate risk: The physical risks of climate change are poorly understood in Canada, which makes it difficult to incorporate risks into asset valuations and financial processes such as investment, lending, and insurance. Creating consistent and transparent approaches for understanding, pricing, and disclosing physical climate risk—as advocated by the Task Force on Climate Related Financial Disclosure (TCFD) and Canada’s Expert Panel on Sustainable Finance— would help define a clear price signal. This, in turn, will incentivize companies, asset owners, and individuals to reduce their risk in order to protect their access to capital and insurance. These private investments in risk reduction—such as relocating physical assets away from wildfire risk areas or flood plains—will reduce the need for public financing of large adaptation and resilience projects. Recent efforts internationally to create standardized approaches for physical risk disclosure indicate positive momentum, but many challenges remain.
  3. Linking adaptation to finance and insurance: In an increasingly hazardous climate, new types of insurance products—such as catastrophe bonds that provide insurance coverage against losses from climate- and weather-related disasters—may become increasingly important. Public bodies such as municipal governments and utilities may require this coverage to maintain their credit ratings and access to capital, and to mitigate the risk of insolvency in the event of major disasters. Insurers and financial institutions are already considering mechanisms to reduce insurance premiums to account for the risk-reduction benefits of resilience investments, and to capitalize the savings, so that funds can be made available to the insured organization to invest in resilience projects.

The path ahead for sustainable adaptation finance is not without obstacles. None of these mechanisms are currently operating at substantial scale. Deliberate intervention on the part of the financial sector, governments, and regulators will be required. And far better information and analysis about climate risks and the benefits of investment in adaptation is required to develop the right price signals. But all these obstacles can be overcome.

Governments need to dramatically increase their climate change adaptation investments, but direct government investment alone won’t be enough to address the Canadian adaptation gap. Governments and the private sector together need to create new mechanisms that drive private investment into adaptation and away from risk.

Glen Hodgson is a senior fellow at the Conference Board of Canada. Ryan Ness is Adaptation Research Director with the Canadian Climate Institute.

Originally published in The Hill Times.

3 Maps That Show Why Carbon Pricing in Canada Needs a Tune-Up

Carbon pricing is poised to be the backbone of Canada’s efforts to achieve its 2030 greenhouse gas emissions target on the way to net zero by 2050. And that’s good news, because carbon pricing is a cost-effective way to reduce emissions.

But here’s the thing: carbon pricing only works if systems are designed well. 

Over the last five months, we independently assessed the effectiveness of federal, provincial, and territorial carbon pricing systems. We found much to admire, as provinces and territories have tailored carbon pricing according to their context and their own priorities. But we also found some design issues that should be addressed to deliver fair, cost-effective emissions reductions.

This blog provides an overview of our findings. It presents three maps that illustrate the differences in carbon pricing design choices across the country, comparing three key indicators. 

Map 1: Comparing coverage

In general, broader coverage of carbon pricing systems is better. Covering more emissions means that carbon pricing creates incentives for more emitters to find ways to avoid producing those emissions. And consistently applying a price across a broader set of emissions also lowers the costs of achieving targets by making sure all “low-hanging fruit” gets harvested. 

Two factors make comparing covered emissions across systems more complicated. 

First, not all emissions are easy to price. It’s easy to quantify emissions produced by burning fossil fuels. And large emitters also already measure emissions produced from other processes—for example, chemical processes in cement manufacturing. But it’s hard to quantify emissions from other, small and widely distributed sources such as those from agricultural lands and farm animals. 

Second, some systems deliberately exempt some emission sources. These exemptions may be rooted in efforts to shelter some emitters. They may be legitimate, but make no mistake, they mute the price signal and undermine effectiveness. 

To address these two factors, and to compare program coverage across jurisdictions on a consistent basis, we developed a standardized coverage indicator that counts only emissions that are covered in at least one Canadian  carbon pricing system. This approach controls for some jurisdictions having a large share of emissions sources that are not covered by carbon pricing anywhere in Canada, while highlighting emissions sources that have been excluded from the price. 

Map 1, below, compares the standardized coverage across all provinces and territories. 

No jurisdiction covers all possible “coverable” emission sources, with coverage varying from 69 per cent to 97 per cent. We found multiple emissions sources that are covered in some, but not all, carbon pricing programs. These exemptions and uneven coverage limit the impacts of the price signal. 

Map 1: Comparing Covered Emissions in 2020

Not all policies apply to the same emissions. 

Map 2: Comparing marginal cost 

A second indicator is the “marginal” cost of carbon emissions—the value of an emissions reduction, with a higher value creating a higher incentive to reduce emissions. The marginal cost is essentially the price of carbon. The marginal price signal creates incentives for low-carbon technology or behaviour change, thereby lowering the emission intensity of production or consumption.

Again, however, the story is more complicated. Importantly, the price of carbon is not the sole determinant of effectiveness, especially in cap-and-trade systems such as those in Quebec and Nova Scotia. Prices of allowances in cap-and-trade systems will not fully reflect the ambition of emissions “caps” if either: 1) the system allows for permit trade with other jurisdictions; or 2) other, non-pricing policies are driving significant emissions reductions alongside the cap-and-trade system

Map 2 compares marginal carbon costs, which ranges from $16 to $41 per tonne.

Map 2: Comparing Marginal Cost Incentives in 2020 

In some places, policy design dilutes the price signal. 

Several factors explain why prices are not uniform across the country: 

  • Quebec’s carbon price is tied to the market price of allowances in the Western Climate Initiative (WCI) through link trade with California. Quebec’s aggressive cap means that this lower carbon price should not be interpreted as a weak price signal. We also note Quebec is the only jurisdiction in Canada with a long-term price signal to 2030. 
  • British Columbia has the highest marginal cost incentive. The increased marginal cost incentive provided by the CleanBC Industrial Incentive Program increases the effective price since facilities have an incentive beyond the carbon tax rate to reduce emissions relative to their greenhouse gas intensity. 
  • Alberta, Ontario, New Brunswick, Manitoba, Newfoundland and Labrador, Prince Edward Island, Yukon, Saskatchewan, and the Northwest Territories all have marginal cost incentives aligned with the federal carbon price schedule. Absent modelling of credit supply and demand, we assume that the price holds in the large-emitter programs, though there are legitimate concerns that over-allocation could undermine demand for credits, and thus reduce the actual carbon price faced by firms.
  • Newfoundland and Labrador, New Brunswick, and Prince Edward Island all offer point-of-sale rebates, limiting the overall increase of some fuel prices tied to the carbon price. New Brunswick has recently indicated it will eliminate this design choice, instead using revenue to reduce existing taxes.
  • The Northwest Territories and Nunavut provide a range of direct rebates to mute the income impact on business and households, including those in remote communities. 

Two risks emerge when not all policies have the same price. First, lower carbon prices in some jurisdictions undermine overall effectiveness. Second, uneven carbon prices undermine cost-effectiveness, since lower-cost emissions reductions will go unrealized in some jurisdictions.

The solution is straightforward: point-of-sale rebates that are tied to fuel consumption should be removed. Affordability concerns can and should be addressed in other ways not tied to fuel consumption, such as rebating directly to households or providing abatement subsidies, as many carbon pricing programs in Canada are doing.

Map 3: Comparing average cost

Finally, a third indicator is the average cost of carbon. The average cost is the total cost paid for all compliance divided by tonnes covered. It affects long-term effectiveness by driving capital decision making related to the costs of ownership and promotes major facility retrofits such as installing carbon capture utilization and storage technology. 

Average costs have more complex implications than marginal costs or covered emissions. On the one hand, governments have deliberately designed systems to have lower average costs—while maintaining higher marginal costs—to create incentives for companies to reduce emissions by improving performance, not by shifting investment and production to other jurisdictions. On the other hand, a low average cost mutes the incentive to make the long-term, transformative shifts in the Canadian economy needed for Canada to compete in a carbon constrained world. 

Map 3 indicates that the average cost of programs ranges from a low of $4 per tonne to a high of $36 per tonne, with a national average of $17 per tonne:

  • The major outlier is Nova Scotia, at $4 for all covered emissions, where freely granted emissions credits result in compliance tonnes representing just 13.5 per cent of covered tonnes. 
  • Alberta is also low at $10 for all covered emissions. Alberta and Saskatchewan ($14) have a lower average cost because large emitters make up a larger share of each jurisdiction’s total emissions. Also, fewer emissions in the large emitter sectors are priced, given concerns related to competitiveness. 
  • Newfoundland and Labrador’s average cost, at about half the marginal cost, is a function of only 10 per cent of covered emissions subject to compliance in the large emitter program, but also some point-of-sale rebates to fuel consumers. As well, the large emitter sectors make up a significant share of total covered emissions (57 per cent).
  • Quebec’s low average cost is a function of free allocation for the large emitter sectors as well as the low marginal cost incentive that reflects the market price for WCI allowances. 

Map 3: Average Carbon Cost for All Covered Emissions in 2020

Diluting the average cost is especially a problem for industrial emissions.

The observed differences in the average cost present a few risks. First, the impact on businesses and household income is higher in some jurisdictions over others, raising fairness concerns. Second, the differing average costs across businesses, including large emitters, means that Canada has a domestic competitiveness issue. Finally, as mentioned above, low average costs dilute incentives for more fundamental transformations of Canada’s economy in the long term, especially as other countries move toward aggressive climate policy, levelling the international playing field. 

Over time, Canadian jurisdictions should work together to better align and then increase large emitter average costs to be more consistent across both jurisdictions and sectors. 

What’s next for carbon pricing in Canada? 

Carbon pricing is now a key element of Canada’s collective efforts to decarbonize. Over the last five years, carbon pricing has moved from covering 38 per cent of our national emissions to 78 per cent. But as the systems mature and the global policy landscape evolves, Canada must improve the integrity of its carbon pricing systems. Regional variations across the federation can and should be accommodated, but only if they do not undermine the effectiveness of pan-Canadian carbon pricing, overall. 

It’s time for federal, provincial and territorial governments to build on the existing foundation and make carbon pricing more consistent, transparent and effective.

For our recommendations of what governments can do to tune-up carbon pricing, check out our summary report.

The best way to prepare for climate change? Invest in people.

Without government action, climate change will widen the health gap between rich and poor

This may be unwelcome news, but COVID-19 is not the only health crisis in Canada. While all eyes are fixed on case counts and vaccination numbers, climate change continues to affect everyone’s health— and this is poised to worsen over the coming decades. Climate change will deepen the existing socioeconomic fractures that make disadvantaged people more susceptible to poorer health. And without additional preparation, climate change will cost the country billions of dollars in increased illnesses, escalating healthcare costs and lost productivity.

Adapting to climate change has often been treated as an afterthought, or even an admission of defeat—something to undertake if society fails to reduce greenhouse gas emissions sufficiently. But while acting to limit warming is essential, so is acting to prepare for the changes already baked in. Even if Canada and the rest of the world reach net zero emissions by 2050, past emissions already guarantee disruptions in the decades to come, and the best way to minimize these disruptions is to understand the forms they’re likely to take and move proactively to address them. 

New analysis from the Canadian Climate Institute, an independent climate policy research organization, seeks to do precisely that: providing a comprehensive review of the climate change-related health costs that may await Canada, and pointing to where the wise investments today could have the biggest impact. Their report, The Health Costs of Climate Change: How Canada Can Adapt, Prepare and Save Lives, provides both a warning of the major impacts to the health and prosperity of people across Canada, and hope that if action begins today, it could limit healthcare costs and loss of life. 

Preparing for the health impacts of climate change requires us to address the root causes of health vulnerabilities—poverty, homelessness, and food insecurity. The same fault lines that have made COVID-19 harder on some, with Black people, Indigenous Peoples, and people of colour disproportionately suffering both the health and economic impacts of the pandemic. The same holds for the health impacts of climate change, and growing inequality could further exacerbate the situation.

Inequity is increasing in Canada, and that’s leading to increasingly unequal health outcomes. A recent study from Statistics Canada, for example, finds that men in the top 20 per cent income bracket live nearly eight years longer than those in the bottom 20 per cent, and the gap is growing. 

The fact is, your health outcomes and life expectancy are determined much more by your postal code than your genetic code. Income, education, access to quality housing, and food and water security shape the health of individuals, neighborhoods, and communities across Canada, and the gap in outcomes for the most and least fortunate continues to grow. 

The health effects of climate change may not be as visible and fast moving as the spread of COVID-19, but they may be as deadly. It is time for Canada to take health preparation more seriously. Over the past five years, 12 per cent of federal climate change funding went to reducing climate change risks, while just 0.3 per cent was designated to reduce health impacts.

Good health starts in our homes, our jobs, and our communities. Investing in climate change adaptation today, including measures that address the social and economic factors that result in poor health, will save lives and improve quality of life for generations to come.

Originally published at iPolitics.

The benefits of retrofits

Home retrofits, which featured prominently in the federal government’s recent budget, will play a critical role in reducing Canada’s greenhouse gas emissions. But the grants and subsidies offered to entice homeowners to install heat pumps, seal drafty windows, or add insulation often get a rough ride from economists. When designed poorly, retrofit programs can be an expensive way to reduce emissions. Designed well, however, they can pay for themselves in reduced energy bills, cleaner indoor air quality, and better overall living conditions.

The Mi’kmaw Home Energy Efficiency Project in Nova Scotia is a perfect example of the positive potential of home retrofit programs. The program makes band-owned homes more livable and comfortable, and actively addresses some of the systemic problems with housing in Indigenous communities. More striking is that the program passes a basic cost-benefit test even without factoring in these improvements to health and well-being.

Let’s break down the numbers.

Home sweet home

To help Nova Scotia Mi’kmaq communities unlock the benefits of home retrofits, the provincial government (with the help of federal funds) launched a pilot program in 2018 to retrofit band-owned homes, which represent about 80 per cent of all on-reserve houses in Nova Scotia. The Mi’kmaw Home Energy Efficiency Project  is run through EfficiencyOne (an independent non-profit) and offers a range of household improvements—everything from replacing windows and doors and adding insulation to installing fans and heat pumps.

The pilot retrofitted 100 homes and has since been scaled up due to its popularity. The goal is now to retrofit 80 per cent of the 2,400 band-owned homes in the province over the next 10 years. This makes it among the most ambitious retrofit programs in the country.

Putting value on health and comfort

The benefits from the program are big, and some have little to do with climate change.

Perhaps the most important benefit is improving indoor air quality. Retrofits under the Nova Scotia program improve insulation, ventilation, draft proofing, and humidity control—all of which can reduce the likelihood of mold and unhealthy air. With proper ventilation, these improvements can reduce the prevalence of asthma and other respiratory issues, and even improve mental health. Youth, elders, and those with underlying health conditions typically benefit most.

Warmer and more energy-efficient homes are also more comfortable to live in. Five houses retrofitted under the program in Glooscap First Nation, for example, have garnered glowing reviews from residents, according to Jason MacLeod, the reserve’s Housing and Infrastructure Officer. New heat pumps offer more stable temperatures during winter months and air conditioning provides relief during hot and sticky Nova Scotia summers.

The Mi’kmaw retrofit program has other clear benefits as well, such as greenhouse gas reductions, energy savings, and community resilience. So, how do these benefits stack up against the costs of the program?

Counting costs and benefits

Let’s put the improvements to health and well-being aside for a moment. These benefits are real and tangible, but quantifying them is tricky. Each retrofit is unique, with varying implications for health and wellbeing.

With a little back-of-the-envelope math, however, we find that the Nova Scotia retrofit program makes economic sense even without considering those health and well-being benefits. The average cost of a retrofit is between $6,000 to $7,000 and saves the average household $750 each year in energy costs. Each retrofit also eliminates about two to three tonnes of greenhouse gas emissions a year.

Using these ranges and a few important assumptions,[1] I estimate that the retrofit program generates about $1.60 to $5.10 in benefits for each dollar spent (i.e., its benefit-cost ratio) over 25 years. Put a little differently, the benefits from energy savings and from reducing greenhouse gas emissions are two to five times greater than the program cost. Adding improved indoor air quality to the math would only strengthen the case.

The benefits from energy savings and from reducing greenhouse gas emissions are two to five times greater than the program cost.

The more targeted the better

But can all or most of these benefits be directly attributed to the government program? Wouldn’t some households make these upgrades anyway without government help, especially with a rising price on carbon emissions? This refers to what economists call the free-rider problem, which can undermine the economic efficiency of subsidy programs. A 2014 paper, for example, found that subsidies and grants were predominantly taken up by middle- to upper-class households who probably would have made the repairs anyway.

The free-rider problem is clearly not as relevant here, however. Despite improvements to on-reserve housing over the past few decades, the quality of housing is often below that of off-reserve housing in Canada, and over 80 per cent of reserves have median incomes that fall below the national poverty line (see here, here, and here). The reasons for this are complex and beyond the scope of this blog, but there are clear linkages to historic and ongoing colonialism, systemic racism, and discrimination.

Targeting retrofit programs to those needing the most, like the one in Nova Scotia, can drive benefits directly attributable to the program—they wouldn’t have happened without it.

There are also important dynamics in how Indigenous communities manage housing. In some cases, on-reserve houses are owned and managed by the band, where the occupants may not have the ability to make retrofits themselves, or may have less of an incentive to do so if the house doesn’t belong to a family for a long time. While the provision of housing is different across reserves, the Nova Scotia program helps address the challenge of split incentives by providing funds directly to the bands to make retrofits on the occupants’ behalf.

A good start

The program is not without its faults. Program funding, for example, can only be spent on physical repairs. A house may get a new heat pump, but there’s often no one in the community with the skills and knowledge to maintain or repair it. A recent review of on-reserve housing by the federal government identified this lack of on-reserve technical capacity as a systemic problem across Canada.

Looking to the future, pairing physical housing upgrades with capacity building could give Indigenous communities more autonomy in how programs are designed and delivered. Better partnerships between communities and the corresponding government departments can help support greater skill-building and resilience (especially in remote communities). Future initiatives could also benefit by partnering with existing Indigenous programs, like Indigenous Clean Energy’s “Bringing it Home” initiative, that focus on capacity building.

In stark contrast to the economists’ skepticism toward retrofit programs, the Nova Scotia program demonstrates an important truth: targeted programs can make economic sense, even without considering the less tangible benefits to health and well-being. As governments look for low-hanging-fruit options to reduce emissions, scaling up more targeted programs like Nova Scotia’s in other communities—Indigenous and non-Indigenous—could deliver big benefits on multiple fronts.

[1] In my calculations, I assume these benefits extend into the future for 20 years. I assume, for example, that the cost of each additional tonne of greenhouse gas released into the atmosphere matches the federal government’s planned increase in the carbon price. According to this plan, the cost of carbon will rise from $40/tonne in 2021, to $170/tonne by 2030, and stay at that level to 2040. I also assume a discount rate of 8% for the low estimate and 3% for the high estimate.