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Ottawa’s cap-and-trade plan long on costs, light on environmental benefits

Published

1 year ago

5 minute read

From the Fraser Institute

By Kenneth P. Green

” the Trudeau government’s new plan would reduce an already unmeasurable climate benefit to one even less measurable “

On Thursday, the Trudeau government unveiled its plan to cap greenhouse gas emissions from Canada’s oil and gas sector. The plan calls for a “cap-and-trade” system rather than a mandatory hard cap on emissions.

A previous plan would have required the oil and gas sector to reduce emissions by 42 per cent (from 2019 levels) by 2030. The new plan calls for a 35 per cent to 38 per cent cut (again, compared to 2019 levels by 2030). So the government has somewhat softened the target. However, the slight change is unlikely to improve the cost/benefit analysis for the sector or affected provinces.

As noted in a study published earlier this year, the Trudeau government’s previous plan would have resulted in at least $45 billion in revenue losses for the oil and gas sector in 2030 alone, which would imply a significant drop resource royalties and tax revenue for governments. And costs would ripple farther out from the oil and gas sector, into the plastics and petrochemical sectors, imposing more costs and threatening the employment of many Canadian workers in those sectors.

Crucially, according to the study, this economic gain would come with little or no environmental benefit. While the reductions would be large when only considering Canada’s oil and gas sector, the impact on climate change, which is a matter of global GHG concentrations, would be virtually nonexistent. The government’s previous plan called for Canada to reduce GHG emissions by 187 megatonnes in 2030, which would equate to four-tenths of one per cent of global emissions and likely have no impact on the trajectory of the climate in any detectable manner and hence offer equally undetectable environmental, health and safety benefits. In other words, the Trudeau government’s new plan would reduce an already unmeasurable climate benefit to one even less measurable.

And now, there are serious questions if the new plan will deliver even the miniscule climate benefit mentioned above. Under a cap-and-trade scheme, companies can trade in emission offsets if they’re unable to reduce emissions via their own technological processes, and to avoid cutting oil and gas production. But emission offset schemes are deeply dodgy.

As noted in a Guardian investigation of Verra, the world’s leading offset market—basically, organizations that reduce carbon in the atmosphere by tree-planting and other initiatives—more than 90 per cent of Verra’s rainforest offset credits (among the most commonly used by companies) are likely “phantom credits” and do not represent genuine carbon reductions. And as reported in the ultra-green Grist, rainforest credits are not the only bogus game in town. “In reality… the market for these offsets is ‘riddled with fraud,’ with offset projects too often failing to deliver their promised emission reductions.”

Canada’s domestic carbon offset market may be more robust than in other countries, but there’s no guarantee. If a significant share of Canada’s offsets prove to be as bogus as the international norm, GHG reductions from the oil and gas sector might be smaller still.

The Trudeau government’s new GHG cap on the oil and gas sector is a moderate improvement over the previous plan. The cap is a bit less stringent, and therefore might be easier to attain. And the use of cap-and-trade rather than a hard cap will give the oil and gas industry more flexibility, and more importantly, allow it to avoid curtailing production to satisfy the cap. But the plan still fails a critical cost/benefit analysis. It remains quite high in potential costs for Canada’s oil and gas sector, particularly in provinces which produce the most oil and gas, yet will deliver environmental benefits that are too small to measure.

Author:

Kenneth P. Green
Senior Fellow, Fraser Institute
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Next federal government has to unravel mess created by 10 years of Trudeau policies

Published on March 5, 2025

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From the Fraser Institute

By Jock Finlayson

It’s no exaggeration to describe the Trudeau years as almost a “lost decade” for Canadian prosperity.

The Justin Trudeau era is ending, after nine-and-a-half years as prime minister. His exit coincides with the onset of a trade crisis with the United States. Trudeau leaves behind a stagnant Canadian economy crippled by dwindling productivity, a long stretch of weak business investment, and waning global competitiveness. These are problems Trudeau chose to ignore throughout his tenure. His successors will not have that luxury.

It’s no exaggeration to describe the Trudeau years as almost a “lost decade” for Canadian prosperity. Measured on a per-person basis, national income today is barely higher than it was in 2015, after stripping out the effects of inflation. On this core metric of citizen wellbeing, Canada has one of the worst records among all advanced economies. We have fallen far behind the U.S., where average real income has grown by 15 per cent over the same period, and most of Europe and Japan, where growth has been in the range of 5-6 per cent.

Meanwhile, Ottawa’s debt has doubled on Trudeau’s watch, and both federal government spending and the size of the public service have ballooned, even as service levels have generally deteriorated. Housing in Canada has never been more expensive relative to average household incomes, and health care has never been harder to access. The statistics on crime point to a decline in public safety in the last decade.

Reviving prosperity will be the most critical task facing Trudeau’s successor. It won’t be easy, due in part to a brewing trade war with the U.S. and the retreat from open markets and free trade in much of the world. But a difficult external environment is no reason for Canada to avoid tackling the domestic impediments that discourage economic growth, business innovation and entrepreneurial wealth creation.

In a recent study, a group of economists and policy advisors outlined an agenda for renewed Canadian prosperity. Several of their main recommendations are briefly summarized below.

Return to the balanced budget policies embraced by the Chretien/Martin and Harper governments from 1995 to 2015. Absent a recession, the federal government should not run deficits. And the next government should eliminate ineffective spending programs and poor-performing federally-funded agencies.

Reform and reduce both personal and business income taxes. Canada’s overall income tax system is increasingly out of line with global best practise and has become a major barrier to attracting private-sector investment, top talent and world-class companies. A significant overhaul of the country’s tax policies is urgently needed.

Retool Ottawa’s existing suite of climate and energy policies to reduce the economic damage done by the long list of regulations, taxes, subsidies and other measures adopted Trudeau. Canada should establish realistic goals for lowering greenhouse gas emissions, not politically manufactured “targets” that are manifestly out of reach. Our climate policy should reflect the fact that Canada’s primary global comparative advantage is as a producer and exporter of energy and energy-intensive goods, agri-food products, minerals and other industrial raw materials which collectively supply more than half of the country’s exports.

Finally, take a knife to interprovincial barriers to trade, investment and labour mobility. These long-standing internal restrictions on commerce increase prices for consumers, inhibit the growth of Canadian-based companies, and result in tens of billions of dollars in lost economic output. The next federal government should lead a national effort to strengthen the Canadian “common market” by eliminating such barriers.

Jock Finlayson

Senior Fellow, Fraser Institute
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Business

Trump promises tariff revenue, fair trade and more jobs

Published on March 5, 2025

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From The Center Square

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President Donald Trump told Congress on Tuesday that tariffs would make America rich again, but predicted minor “disturbances” on the path ahead.

Trump said he would put reciprocal tariffs on foreign countries starting April 2.

“Whatever they tariff us, we tariff them. Whatever they tax us, we tax them,” Trump said. “If they do non-monetary tariffs to keep us out of their market, then we do non-monetary barriers to keep them out of our market. We will take in trillions of dollars and create jobs like we have never seen before.”

Trump didn’t detail the potential disturbance in his speech, but economists and business groups have raised concerns about higher prices for U.S. consumers.

Trump also promised Congress would balance the federal budget and reduce taxes. Making good on those promises could come with challenges.

Trump previously said he wants a balanced budget, but his promise to extend the tax cuts in the 2017 Tax Cuts and Jobs Act could make that difficult for both the House and Senate. Extending the tax rates could cost about $4 trillion in federal revenue, independent groups say.

In the past 50 years, the federal government has ended with a fiscal year-end budget surplus four times, most recently in 2001. Congress has run a deficit every year since then.

During his inauguration, Trump touted the benefits of tariffs. He said tariff revenue would make the U.S. “rich as hell ” and lower the tax burden on American taxpayers.

Trump’s comments Tuesday before a joint session of Congress came after he put 25% tariffs on Mexico and Canada and added an additional 10% duty on imports from China. He has said he plans to keep those tariffs in place until Mexico and Canada stop illegal immigration and drug trafficking at the U.S. borders.

The tariffs spooked investors on Wall Street, causing a second day of market losses Tuesday. Consumers and economists have raised concerns about higher prices on a wide range of products as a result of the tariffs.

Tariffs are taxes on imported goods paid by the importer, which are often passed along to consumers through higher prices on the imported products.

Canada responded with plans to put 25% tariffs on nearly $100 billion of U.S. imports. Mexico said it would retaliate with moves to be announced Sunday. China filed a complaint with the World Trade Organization.

The U.S. Chamber of Commerce and the American Farm Bureau Federation called on Trump to change course on tariffs.

Later Tuesday, Commerce Secretary Howard Lutnick said Trump could announce trade compromises with Canada and Mexico as soon as Wednesday.

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