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Energy and Resources Canada urged to bite the bullet on shift to low-carbon economy

Most provinces either have or intend to introduce carbon pricing plans – either direct taxes or cap-and-trade systems – that drive up energy costs to consumers and businesses.

ANDREW VAUGHAN/The Canadian Press

Canadians will pay a significant cost to meet the country's climate change goals and transition to a low-carbon economy, but it is a price that must be paid and that will rise if action is delayed, the Conference Board of Canada says.

In a report released Wednesday, the business-oriented think tank said carbon pricing and the phase-out of fossil fuels in the electricity sector will drive up costs for households and companies, while shifting economic activity from the private sector to government.

"The transition is very significant from Canada's current industrial structure to a greener structure, and because of that, companies, individuals and governments need to find the commitment to make this happen," the study's author, Len Coad, said in an interview Tuesday.

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"Yes, it will cost us to act but it will cost us more to not act. … The eventual outcome [of not acting] means a different kind of adjustment: to a world that is hotter, drier, more violent and with more frequent storms."

Delaying the inevitable shift, he said, will increase the costs of the economic transition and of the adjustment to climate-change impacts.

Federal and provincial governments are being urged to slow down their climate-change-related action, as business groups such as the Canadian Chamber of Commerce warn that imposing costly taxes and regulations on industry will make the Canadian economy less competitive, particularly at a time when U.S. President Donald Trump is focused on lowering the cost of environmental regulations to businesses there.

Most provinces either have or intend to introduce carbon pricing plans – either direct taxes or cap-and-trade systems – that drive up energy costs to consumers and businesses. The federal Liberal government plans to introduce its own carbon price, that would rise to $50 per tonne by 2022 and apply in provinces where governments balk at introducing their own or attempt to roll back existing provincial plans.

Both levels of government are also introducing a range of regulations and policies aimed at meeting Canada's commitment to reduce greenhouse gas emissions by 30 per cent below 2005 levels by 2030.

Federal and provincial politicians, including federal Environment Minister Catherine McKenna, tend to focus on the opportunities presented by the shift to a lower-carbon economy, playing down the costs faced by households and vulnerable industry sectors.

In its study, the Conference Board urged governments to communicate clearly to Canadians the expected costs as well as the benefits in order to build long-term support for the transition effort.

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"It is imperative that policy-makers clearly communicate what is needed from households and businesses to achieve large emissions reductions and that society is ready to make those commitments," it said. "History has taught us that long-term change cannot be successfully imposed by governments; rather, it must be desired by the citizens."

The researchers calculated the costs in three separate areas: carbon pricing, the shift to non-fossil-fuel power, and the required investment in clean energy technology, efficiency and efforts to change energy-related lifestyles.

However, its forecasts do not take into account the economic benefits that accrue from greater energy efficiency, either in industry or among households.

It concludes the impact of carbon pricing will be small across the country, but with significant differences by region and industry. The Conference Board also assumes that some of the increased government revenue from the carbon levies will be rebated to households and corporations, and that a slightly lower Canadian dollar will help offset negatives impacts for export-oriented industries.

The researchers looked at the prospect of the carbon price rising to $80 per tonne by 2025. It said the impact would be to reduce the overall economy by 1.8 per cent; lower the average weekly wage for Canadians by 0.8 per cent, and reduce employment by 0.1 per cent below the business-as-usual forecast.

Among the most vulnerable industries are the chemical sector, mining and smelting, and pulp and paper. However, Mr. Coad noted that provinces are looking to soften the blow to those energy-intensive, globally traded industries by providing free allowances – in the case of cap-and-trade – or breaks on the taxes as with Alberta's carbon price.

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The Conference Board report said it had no way to forecast the impact from the development and widespread deployment of innovative technology.

"If these new technologies can be commercialized, it is possible that new sectors will emerge focused on products and services that promote clean energy and emissions reductions," it said. "These new sectors, not considered in this analysis, could help mitigate the negative effects of carbon pricing on the economy."

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