Oped - Nov. 2, 2017 - By Erin Flanagan, Stephen Thomas

Published in The Hill Times (November 2, 2017).

Believe it or not, but the debate on carbon pricing in Canada has seen significant progress over the last two years. Putting a price on carbon pollution is a surefire way to reduce emissions, and also helps to ensure clean economic growth happens here at home. More than ever, it’s not just the usual suspects pointing out these facts—big banks, the oil and gas industry, and some right-leaning political leaders have put their weight behind well-designed carbon pricing policies too.

Last fall, when the federal government announced its intention to implement a national carbon price, Prime Minister Justin Trudeau outlined a flexible approach that put provinces and territories fully in the driver’s seat. Ottawa’s play on carbon pricing was to act as referee: they gave sub-national governments until 2018 to put together a carbon pricing plan appropriate for their local context, whether that be through cap-and-trade legislation or through a carbon tax rising until 2022. The only catch: the provincial or territorial approach needs to meet Ottawa’s minimum standards, and should make real progress on emissions reductions.

Canada’s biggest provinces— Quebec, Ontario, Alberta and British Columbia—already have systems in place that meet Ottawa’s minimum requirements.

Last November, Nova Scotia committed to implement a new cap-and-trade system. Nova Scotia’s system is precedent setting, as it is the first test-case under the new federal carbon pricing benchmark—and whether or not it passes muster will set the tone for other provinces and territories as they roll out their plans. Unfortunately, Nova Scotia’s system—which passed third reading last week—risks getting the federation off on the wrong foot.

Three important considerations remain that will impact whether the system Nova Scotia has proposed delivers economic and environmental benefit.

First, the province has yet to set its economy-wide carbon cap. This is essential information, since the rate at which the cap is set (and declines) will determine whether or not it promotes emissions reductions. In the legislature last week, the province’s environment minister said the system will have “…declining caps below the business-as-usual case.” This is encouraging, and was the first time the McNeil government made such a commitment—but further details have yet to emerge. We encourage the government to work to establish those parameters sooner rather than later.

Second, Nova Scotia’s proposal gives carbon pollution credits away for free to polluters indefinitely, which combined with the lack of a stringent cap could eliminate the signal to industry to reduce its emissions and forgoes any potential revenue collected under the system. No revenue means no capacity to protect vulnerable citizens, mitigate competitiveness impacts, and ensure fairness across the system.

Third, because it’s an unlinked trading system—unlike the Quebec-Ontario-California approach—the market covers a small number of firms and is subject to its own quantification, reporting, and verification rules. These are essential bits of architecture to ensure the overall effectiveness of the system, and it remains to be seen if Nova Scotia will adopt standards as effective as its peers.

Carbon pricing systems that don’t drive emission reductions are missing the point. But we know that Nova Scotia can and should do better: over the last decade, the province has proved itself a climate action leader and has championed important clean growth initiatives. Nova Scotia has reduced its emissions by more than 30 per cent below 2005 levels, an impressive fact few other jurisdictions can boast about. The province has also demonstrated climate leadership by creating over a thousand local green jobs, most notably in the energy efficiency sector.

Nova Scotia’s cap-and-trade system could cause the province to lose its foothold on climate leadership. In order to secure a clean, prosperous economy into the future, the provincial government should consider other approaches. These could include setting ambitious economy-wide greenhouse gas caps, or linking its system with California, Quebec, and Ontario through the Western Climate Initiative. Collecting revenue and linking with WCI could see low-carbon investment from other jurisdictions flow to Nova Scotia, helping the province achieve its important economic development goals.

If the McNeil government won’t consider changes to ensure its carbon pricing system is credible, Ottawa will need to reject their proposal and implement its backstop. In order for a pan-Canadian carbon pricing approach to be effective, the federal government needs to play the essential role of referee: they need to ensure carbon pricing systems are fair, and they lead to necessary emissions reductions.

Ottawa mustn’t let provinces off the hook when they put forward weak policy—that’s true for Nova Scotia, and will remain true as other provinces like Manitoba, Saskatchewan and New Brunswick set their carbon pricing systems too.

An effective carbon price would further Nova Scotia’s long-term diversification and competitiveness goals. We urge Premier Stephen McNeil and Prime Minister Trudeau to work together to ensure Nova Scotia’s attempt under the pan-Canadian approach sets a strong precedent for all of Canada, and to ensure it stacks up against approaches championed by other provinces.

Erin Flanagan is the federal policy director at the Pembina Institute, based out of Ottawa

Stephen Thomas is the energy campaign coordinator at Ecology Action Centre, based out of Halifax