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North American Climate and Energy Policy—The Case for Better Coherence

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By Philip Gass, November 04, 2015

Canada is at a crossroads. A newly elected government has committed to do more than its predecessor to address climate change.

This is a laudable goal, but even meeting the targets set by the previous government will prove extremely difficult. Compounding this challenge is that Canada’s emissions have actually increased at a rate of roughly 5 megatons per year since we committed to our Copenhagen target, referencing national emissions figures through 2013.

The new Prime Minister, Justin Trudeau, states that he will collaborate with provinces and territories to address this immense challenge. This is the right approach: with the commitment of the Province of Ontario to launch a carbon cap-and-trade system, over 85 per cent of the Canadian population lives in a jurisdiction that has, or will soon have, carbon pricing in place.

But more is needed. For the most effective outcomes, Canada should consider this issue on a grander scale, and the most sensible approach is to look at where the government can collaborate outside its borders for a more regional approach; a stronger relationship with our North American partners makes a great deal of sense.  A collaborative approach means more efficient greenhouse gas reductions, at lower cost, and in a way that limits impact on regional trade.

Here are three areas in which harmonization should be prioritized, and where Canada’s new government, working with the U.S., and potentially Mexico, can achieve real progress. 

  1. Collaborate on regional GHG mitigation: While countries (and for that matter states and provinces) struggle with domestic GHG reduction targets, the atmosphere doesn’t care whether a tonne of emissions is reduced in Toronto, New York or Guadalajara. Harmonization can streamline outcomes that produce the most reductions, whether it is recognition (and prioritization) of developing Canadian hydropower as a way to reduce GHG emissions, or it is Canadian companies investing in clean energy generation in Mexico as a way to meet GHG mitigation targets, or even continental crediting markets. If we develop and streamline regional approaches to emissions reductions we can incentivize the greatest reductions at the lowest cost, and avoid debates on where emissions reductions occur, focusing more on how we can achieve greatest reductions. This isn’t a pipedream: Canada and the U.S. have already proven it can work with vehicle tailpipe emissions standards, which drive GHG mitigation but are harmonized in part for economic and trade related efficiencies. 
  2. Produce clean energy at the lowest cost: Just as the atmosphere doesn’t care where reductions come from, our focus should be on developing new clean energy sources at the lowest cost to serve the broadest geography. This means easing the pathways for energy trade, having cross border consideration of energy generation and transmission placement, and incentivizing cooperation (and reducing barriers) across borders. If a particular state or province can reduce its energy cost by importing power from another jurisdiction they should be able to do so. This can also be considered more broadly, such as facilitating recognition of credentials of energy-sector skilled workers across jurisdictions. The issue of incentivising low-cost energy will become more prominent as we continue to transition away from fossil fuels (particularly coal) in an effort to enact GHG reductions.
  3. Ensure our new clean energy system is as secure as the current one: There are two dynamics to this issue. The first is a need to ‘do no harm’ to a Canadian and U.S. electricity system that has performed remarkably well for the most part. Increasing the amount of renewable, and potentially distributed, energy will have an impact on the continental grid, and this risk must be recognized and mitigated through measured policy action and increased consideration of transmission needs. The second issue is looking at where we can generate greater linkages within the system, not only to increase reliability, but also to facilitate the transmission of renewable energy to an increasing set of endpoints as we move away from coal generation through emissions regulations. Exploring the potential to interconnect electricity systems with Mexico is also an area that we should be look at with increased interest as a way to reduce emissions and increase reliability on a continental level.

Concrete benefits of regional harmonization are numerous. Coordinated policies can be beneficial to address trade concerns and cross-border pollution. If environmental regulations in one country do not count damages to the neighboring countries, then they will be too weak. Further complicating this issue is the potential for greater trade exposure, competitiveness concerns, and the possible reactions to unaligned policies, such as border carbon adjustments.

Even without cross-border pollution, gains can be made by addressing market failures in a coordinated and coherent manner by the neighboring countries. Possibly the strongest case for harmonization is if clean electricity were prevented from being exported or imported, or is not recognized for its environmental benefits.

Cross-border policy dialogues can be very productive, if for no other reason than for governments to become aware of potential issues from adopting different approaches and learning about alternative ways of regulating and facilitating energy sector development across borders. 

Harmonization can be achieved in any number of ways. At one end it can consist of expanding existing agreements on issues such as data sharing and technology cooperation, and on the other it could be more radical, such as the adoption of a continental emissions reduction target (something that the New England Governors and Eastern Canadian Premiers have agreed on a 2030 timeline), or a regional energy strategy to promote renewable energy generation and integration into the North American grid.  Canada, the U.S. and Mexico may also find greater potential for collaboration on the international stage as a regional negotiating bloc, for instance at the UNFCCC, where combined they represent a population approaching 500 million by mid-century.

Canada’s new government has an immense task on its hands to reduce emissions, drive low-carbon energy development, and do it in a way that strengthens our energy delivery systems.  The best way for Canada to tackle this issue is reach out to its continental partners, following the idiom that many hands make light work, or at least lighter work.

Note: IISD, Resources for the Future (RFF) in the United States, and Instituto Technológico Autónomo de México (ITAM) have developed a partnership on North American Energy Integration and encourage our respective countries to collaborate to identify areas of beneficial harmonization.  With Canada at a crossroads for its energy and climate policy it is an opportune time to re-evaluate how it can best address the issues of climate change, energy cost and energy security in partnership with its North American partners