A fair way to share the costs of climate mitigation

The federal government has set emissions reductions targets for the provinces and territories, which are laudable and in line with Canada's international agreements. But it has not addressed how to fairly spread the costs.

Solving this problem is crucial to setting up a workable emissions reduction plan for Canada. Provinces like Alberta and Saskatchewan that have a high concentration of extractive industries have higher mitigation costs than the others. And because their populations are low, their per-capita mitigation costs would be wildly disproportionate compared to the other provinces and territories unless some accounting mechanism is employed to allocate the costs between the provinces and territories.

At the University of Saskatchewan, we devised a concept to spread the costs fairly and evenly called the Mitigation Action Mechanism.

In our column last week, Mitigation strategy for policymakers: Module 2, we discussed the Trigger-Response Concept and described its two defining features: each province and territory devises its own set of triggers and responses based on their local conditions. Once set up, it eliminates completely all delays or debates about what to do when the time is ripe for action.

Our proposed method for spreading the costs of mitigation makes the Trigger-Response Concept feasible. The two together will guarantee that when the actions of all the provinces and territories are added up, the country as a whole will meet the 443-megatonne target of the 2030 Emissions Reduction Plan.

Mitigation strategy for policymakers: Module 3

First, let's distinguish between mitigation actions — the actual steps that must be taken to reduce the megatonnes of greenhouse gases the atmosphere receives — and the accounting tool that allocates the costs and finances actions, known as the Mitigation Action Mechanism (MAM).

Our plan holds local officials responsible for greenhouse gas mitigation actions within each province and territory when a response is triggered within individual economic sectors. The Trigger-Response Concept described in Module 2 provides a method to do this.

When emissions hit a predetermined level, mitigation efforts would kick in automatically. For instance, if an open-pit mine was forced to close, all necessary actions would take place within the province or territory. Although these actions would carry great costs, the MAM provides a fair way to pay for it.

The core principle behind the MAM is to allocate costs based on population. Since the entire country's population benefits, the mechanism spreads the costs according to population distribution. Therefore, using Alberta as an example, since it houses 11 per cent of Canada's population, the mechanism would dictate that Alberta would bear the cost of only 11 per cent of the mitigation actions taken within its borders.

If Alberta's actual mitigation costs amount to (say) $100 million in a given year, considering offsets from other provinces and territories, its net cost would be only $11 million using the MAM.

Alberta would incur three types of costs or business losses which would be subsidized:

1. Worker termination benefits, retraining transition costs, retraining costs and relocation costs. Our model assumes it is in Canada's national interest for its workforce to be protected. If it is in the national interest to reduce greenhouse gas (GHG) emissions in order to meet its international obligations, then the cost of taking care of the workforce should be subsidized.
   
2. Lost business revenues and income experienced by small local businesses. Dozens or even hundreds of small local businesses normally exist to provide ancillary goods and services to support workers who would be terminated. Restaurants, entertainment venues, grocery stores, big-box stores and even landlords for rental housing lose when workers leave the area. If it is in the national interest for a mine to be shut down, these costs should be subsidized.
   
3. Lost tax revenues experienced by local municipalities and the province or territory. The costs of providing government services to the population must continue. Schools must be funded, fire halls and police forces staffed, and roads must be plowed in the winter and potholes repaired come spring. Again, if it is in the national interest to shut down a mine to reduce GHG emissions, then the cost of maintaining government services should be subsidized, too.
   

But what about corporate profits and the loss of shareholder value for the mining company itself? The above three types of costs relate to workers, small businesses supporting workers, and local governments. What about the owners and investors in the large companies that have hundreds of millions or even billions of dollars invested in the mines? If their operations are reduced or even ceased through no fault of their own, shouldn't they be subsidized as well?

No, shareholders and corporate investors are big boys who know the risks at every stage of such ventures. They have already been rewarded very handsomely with high returns on their investments for all the years that the mines were in operation. This is why it is not appropriate for governments to bail out business losses from risky investments.

Hal Segal is part of the Interdisciplinary Studies PhD Program at the University of Saskatchewan. He can be reached at: [email protected]