Thank you.
I hold a Ph.D. in economics from the University of British Columbia. Since 1996 I have been a professor of environmental economics at the University of Guelph. In the early 1990s, I developed and published one of the first computable general equilibrium models of the Canadian economy focused on modelling CO2 emissions and climate policy. Since then, I've published over 100 peer-reviewed academic papers and think tank reports on all aspects of climate change.
During the Chrétien government years, I took part in multimodel assessments of the potential impacts of meeting Canada's Kyoto protocol commitments. In those days, there were multiple published cost estimates from a diverse group of modelling teams, including Finance Canada, Natural Resources Canada and Informetrica. Their work was coordinated by a federal entity, the analysis and modelling group. By contrast, the current government has provided no information regarding the costs of meeting the Paris target. Neither Finance Canada nor NRCan have reconstituted the analysis and modelling group. To my knowledge, there are no published official cost estimates for the federal emissions reduction plan, or ERP. The ERP itself simply waives away the cost issue with vague promises of economic benefits from implementing the plan.
I have published quantitative estimates of the costs of the ERP, or at least those elements that the government specified in enough detail to model. For this work, I developed a new and highly detailed computable GE model of the Canadian economy, which I have published in the peer-reviewed Canadian Journal of Economics. I estimate that the plan will get Canadian greenhouse gas emissions down by a little over halfway to the 2030 target, but at a cost of about 6% of Canada's gross domestic product relative to the base case. Note that the economy continues to grow, but at a slower rate.
The carbon price is the cheapest and most effective component of the ERP. I estimate that by 2030, it would have reduced greenhouse gas emissions by about 18% compared with 2019 levels, and it would have reduced GDP growth by only about 0.1% per year. The clean fuel regulation cuts twice as much off the growth rate as the carbon tax and only reduces emissions a third as much, while the remaining regulatory components, such as tightened building energy efficiency codes, the EV mandate and so forth, are three times as costly as the carbon tax while being only about one-eighth as effective at reducing emissions.
As you all know, the first thing Mr. Carney did after getting elected was to eliminate the consumer carbon tax. Whatever emission reduction policies are retained between now and 2030 will be costlier and less effective.
Rather than go into further details about macromodelling results, I would like to turn to a simplified version of something called the “Kaya identity”, which breaks down annual CO2 emissions into three components—the emissions intensity of GDP, or emissions per dollar of output; real GDP per capita; and population. It shows that, to a close approximation, the annual per cent change in CO2 emissions growth is the sum of the annual per cent changes in emissions intensity, income and population.
In a report for the Fraser Institute in 2024, I showed how these three metrics have changed since 2005 and what the outlook is through 2030. In a figure accompanying my remarks, I have updated the numbers from the original sources to 2024. Canada's CO2 emissions changed very little, falling by less than 3% over the past 25 years. On our current trajectory, we are nowhere near meeting either the 2026 or the 2030 target.
Emissions intensity declined by about 40% since 2005. For 20 years it has been falling by about 2% per year. It does not exhibit any apparent sensitivity to government policy. Instead, it is mainly driven by improvements in energy efficiency, which depend on long-term technological change. Real income per capita rose by about 19% over the past 25 years, which is a worrisome trend if your goal is to reduce greenhouse gas emissions, but fortunately, government policy succeeded in stopping its growth after 2022. There is little prospect that Canadians' real income will rise again in the foreseeable future. Finally, population growth has accelerated to about 3% annually, three times its historical rate.
Remaining committed to the 2030 Paris target will require an emissions cut of 36% from 2024 levels, so about 6% per year. If population growth goes back to 1% annually and emissions intensity continues to decline at 2% annually, all we require is for the government to ensure that real income per capita declines in Canada by about 5% annually for the rest of the decade. While I believe that outcome is within the capability of the present government, I do not recommend it.
