The Cost of a Cleaner Future

Transcription

1 The Cost of a Cleaner Future Dr. Daniel F. Muzyka President and Chief Executive Officer The Conference Board of Canada June 26, 2017 conferenceboard.ca

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3 Targets vs. Scenarios Paris: limit rise in global temperatures this century to well below 2 degrees Celsius each country determines its own Nationally Determined Contribution (NDC). Canada s current NDC: 30% reduction from 2005 by Pan Canadian Framework: 30% or better from 2005 by That means total emissions of 517 Mt or less. Scenario 2 at 30% reduction is 565 Mt from combustion sources in Scenarios 5 and 8 are higher in 2030, but steeper reductions kick in afterward. 3

4 Our Methodology Aggregate Trottier investment for each scenario to sector level. Estimate the impact of increased investment on the economy using Conference Board models. Calculate the impact of closing fossil fuel powered electricity generation plants. Estimate the price impact of carbon pricing. Estimate the economic and environmental impact of increased prices. 4

5 Trottier Scenarios No targeted reductions in GHG emissions No new high-voltage interconnections New nuclear power generation added Targeted reductions in urban form added S4 Moratorium on hydro lifted Targeted reductions in GHG emissions added New high-voltage interconnections added S1 S2 S3 Disruptive technologies considered S5 Additional transformation strategies to achieve maximum reductions S8 Increased electricity exports to the US S6 No nuclear power generation added S7 5

6 Scenario Investments and GDP ( ) (change compared to baseline scenario, billions $ 2011) Direct Total Investment Scenario 2 (30%) Scenario 5 (60%) Scenario 8 (60%) Direct Investment 2,000 3,400 1,510 Direct GDP Impact 811 1, Including Supply Chain Impacts 1,300 1,700 1,300 6

7 Annual Investments vs. Current Investment Difference of Scenario 2 from Scenario 1; Billions $ TEFP annual average (S2 - S1) Business non-residential investment, 2016 $59.9 $179.8 Source: The Conference Board of Canada. 7

8 Economic Impact of Carbon Pricing We modelled the economic and environmental impact of a carbon tax and changing energy mix. Begins in 2018 at $10/t CO 2 e and increases by $10 per year to reach $80/t in Price impacts for all sectors are measured using a supply chain analysis. Carbon tax revenues are assumed to be fully recycled back into the economy. Businesses and households respond to changes in prices. The impact on the broader economy is estimated. 8

9 Price Impacts: Carbon Tax Impact on Wholesale Prices (per cent) $10 $20 $30 $40 $50 $60 $70 $80 Light fuel oils Jet fuel Diesel Gasoline NGLs Natural gas

10 Increase in Household Prices (per cent increase at different levels of carbon tax ($/tonne CO 2 e) $10 $30 $50 $80 Electricity, gas and other fuels Motor fuels and lubricants Transportation services Other non-durable goods Food and non-alcohol beverages Education, health and other services Accommodation, food and beverage services Household semi durable goods Insurance, financial and legal services Communication, recreation and culture services Furnishings, household applicances and other household Clothing and footware Vehicles and parts Semi-durable recreation and personal effects Alcohol and tobacco Other durable goods

11 Increase in Industry Product Prices (per cent increase at different levels of carbon tax ($/tonne CO 2 e) $10 $30 $50 $80 Paper manufacturing Chemical manufacturing Petroleum and coal products manufacturing Primary metal manufacturing Wood product manufacturing Food, beverage and tobacco product manufacturing Other manufacturing Motor vehicle and parts Machinery manufacturing

12 Carbon Tax Revenues and Emissions (change compared to baseline scenario) Carbon tax $/tonne CO 2 eq Total emissions (Megatonnes, CO 2 eq) Industry emissions Electricity generation industry Other industry emissions Household emissions Carbon tax revenue (billions $)

13 Economic Impact Introducing a carbon tax leads to higher prices across the economy, which reduces purchasing power. Households see the cost of their purchases rise by $1200 and their wages fall by $700 (in 2017 dollars). The carbon price has a small negative impact on GDP. Revenue recycling and the depreciation of the exchange rate provide important offsetting impacts. After carbon pricing is introduced, the private sector is smaller and the public sector increases in size. 13

14 Economic Impact: GDP by Expenditures (average change versus baseline from , billions 2007 $) Business investment Household consumption Exports Imports GDP expenditure based Government consumption Government investment

15 Economic Impact: Exports (change compared to baseline scenario, millions $2007, average over 2018 to 2025) Basic and industrial chemical, plastics and rubber products Primary metals Pulp and paper Aircraft, aircraft engines and parts Consumer goods: food, beverage and tobacco products Industrial machinery, equipment and parts Electricity Other manufacturing products Crude metals and minerals Wood products Refined petroleum products Other consumer goods Electronic and electrical equipment and parts Motor vehicles and parts -1,250-1, ,000 15

16 Key Takeaways The TEFP work identified the technical challenges we face. Our analysis of carbon pricing shows that governments must invest the tax revenues to keep the economy growing. A flexible Canadian exchange rate helps protect our export competitiveness. The carbon tax estimated is not enough to reach our Paris commitment. Deliberate investments in infrastructure are required. Technology, policy, and behavioural change must complement each other. 16

17 The Path Forward Policy plays a key role we are making progress through the Pan Canadian Framework, but more is required. The TEFP work shows the contribution technology can make. Our economy can absorb the impact, but the transition is a challenge. The conversation needs to shift toward the role of consumers. The emotional response has always been an unknown, and is central to meeting Canada s GHG challenge. 17

18 Next Steps for the Conference Board Centre for the Low-Carbon Growth Economy launching this fall. Four pillars: energy consumption, energy efficiency, energy production, and the low-carbon business opportunity. The effort will extend the discussion to include consumer behaviour, realistic pathways, and the economic transition. 18

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