December 11th, 2020 by Michael Barnard
Today, Canada’s federal government dropped its new climate change plan, led by a very big number: $170 per ton of CO2 as a carbon price by 2030. This is excellent news, and let’s hope it persists in the face of inevitable opposition. What does this mean?
First off, Canada has had a price on carbon for a while, albeit a very low one. At present, it’s at $30 CAD per ton of CO2, about US$23.50, and was scheduled to peak at $50 per ton of CO2 in 2023. The plan comes with a revenue-neutral rebate to Canadian citizens, so everyone got money back last year, and people with low-carbon lifestyles did very nicely. The last election was, as much as anything else, a referendum on the carbon price, with the federal Conservative party fighting against it and the Liberals (and everyone else) supporting it. The Conservative’s alternative plan? Sell a lot more of Canada’s oil and gas domestically and internationally, so you can see why they were soundly rejected.
The price of $50 CAD per ton was interesting and would have been nudging people to change. The average household that was heating with natural gas would spend a bit more than $200 extra per year, or about $3,300 over the life of a typical residential gas furnace. If they bought a heatpump instead, they’d be spending less than that for electricity for it, and if they replaced the furnace and their air conditioner with the heatpump, they’d be far ahead financially.
The average Canadian keeps their car for 6.4 years and drives it 15,200 kilometers or 9,400 miles annually. At $50, they’d be spending about $150 more a year, or about $950 over the life of the vehicle. As electric cars are already vastly cheaper to drive per mile due to the efficiency of electric drivetrains, they’d be even cheaper. Canada’s gas prior to the carbon price averaged $1.14 per liter (about $4.50 per gallon). The average Canadian car would cost about $1,550 to fuel for a year prior to the carbon tax, but only about $245 for an electric car driven the same distance. That means that at a $50 carbon price, a Canadian would save about $8,700 driving an electric car over the life of the vehicle. $8,700 goes a long way toward defraying the cost of a Tesla Model Y.
Before we go further, it’s important to note that the Canadian price on carbon is revenue neutral. That means that the proceeds are returned to taxpayers when they pay their income taxes. The people and businesses driving electric cars and using heat pumps get a lot of extra money back that’s pure bonus, while the people and businesses persisting in high-carbon consumption get their costs defrayed a bit. There’s a big incentive for people to switch.
And that gets much better at $170 per ton of CO2. Natural gas increases by $8.50 per gigajoule, or about $750 per year and over $11,000 over the life of a residential furnace. That’s a lot of money that could be shifted to a heat pump instead.
And cars? The average person would save $11,000 over the 6.4 years of car ownership with an electric car at a $170 per ton carbon price. Most of that is still just from the greater efficiency and lower cost per 100 kilometers of electrics without any carbon price, but a couple of grand comes from the carbon price too. That’s a good incentive to consider an electric car next time they go to buy.
This also makes a big difference to electrical generation. Coal is dropping off the Canadian grid rapidly. Ontario led the way, shuttering its coal plants over a decade starting in the early 2000s. Alberta started following suit with the 2015 election of the Notley NDP government, which established a 2030 plan for final closure. Another piece of recent great news is that coal is dropping off the Alberta grid even faster, and the last plant will be gone in 2023. However, the current Conservative government is choosing to replace it with a lot more natural gas generation than the previous administration had targeted, 50% instead of 33%. And at $170 per ton of CO2e, that means that a kWh of electricity from natural gas in the province should have a wholesale cost that’s about $0.06 higher than it is today, making it uneconomic. Wind and solar, which have been coming in under $0.05 CAD per kWh wholesale at auctions, are obviously vastly more competitive under a stiffer carbon price.
Of course, if this all seems too good to be true for people concerned about the climate, it might very well be. The map above shows where the federal carbon price applies without jurisdictional change, and where jurisdictions have set their own carbon pricing plans and negotiated with the federal government to assert compliance. That means an oil and gas rich province like Alberta might choose not to apply the full cost to natural gas generation and natural gas shipped to homes and businesses for heating. It might fight hard to keep shipping natural gas and using it for electricity, doing something else somewhere else to eliminate carbon from their grid. Considering its provincial carbon emissions have skyrocketed, mostly due to industrial oil and gas energy consumption and direct emissions and they are already shutting down coal, the province doesn’t have much wiggle room. Building efficiency won’t cut it.
Even jurisdictions like next door Saskatchewan, which in theory have the federal carbon price applied, have negotiated variances in its application within its borders, mostly to protect its fossil fuel industry as well.
And, of course, governments have fallen on carbon pricing, as occurred in Australia a few years ago. There are two scheduled elections before 2030. With luck, 2019 will repeat itself, sane governments will remain in power and Canada will rapidly decarbonize. The Conservatives are sure to try to capitalize on this, raising all sorts of specious arguments. After all, their climate change plan is selling more fossil fuels domestically and internationally, so it’s not like they are even pretending to make sense any more when it comes to climate change.
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