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The value of a carbon cap and trade system, or a carbon tax, hangs on whether it raises enough money to pay for meaningful carbon emission reductions. To be effective in reducing emissions, a cap-and-trade scheme, or a carbon tax, has to raise enough money to put emission-reduction technologies into action on a large scale. Which technologies, and how much money? That is what we should be debating.
The debate currently underway in both Canada and the U.S. has long been focused almost exclusively on a narrow range of technologies like wind, solar, and biofuels. Only very recently, nuclear was added to that list (see article).
Which of these approaches deserves the most money? Take the electricity generation sector. Canadian electricity generators emitted 128 million metric tons of greenhouse gases (GHGs) in 2004, the most recent year for which data are available. That’s about 17 percent of our national emissions. What size of emission reduction would qualify as meaningful? The Kyoto Treaty requires the power generation sector in Canada to reduce annual GHGs by over 38 million metric tons. Most carbon from this sector comes from coal-fired power plants, which kick out up to a kilogram of carbon for every kilowatt-hour of electricity they generate.
Achieving a 38 million ton annual emission reduction from the power generation sector in Canada means generating 38 billion kWh from non-emitting sources. That’s eighty-five percent of Alberta’s coal-fired power output in 2004, and twice Saskatchewan’s entire power output in that year (see Environment Canada’s Electricity Intensity Tables).
Considering this, nobody should be surprised that Alberta and Saskatchewan are, to put it mildly, not enthusiastic about a major carbon costing scheme. Since their power systems are coal-based, the retail cost of electricity in those provinces would skyrocket if somebody had to pay for carbon emissions.
To achieve a meaningful emission reduction in the Canadian power generation sector, any carbon costing scheme, whether it is based on cap-and-trade or an outright tax, has to raise enough money to build power plants that are capable of generating 38 billion kWh a year in the six Canadian provinces whose power generation systems are based wholly or partly on fossil-fuel sources. Since we’re talking about mostly baseload power (i.e., electricity that is available 24 hours a day, 7 days a week), this works out to around five 1,000 megawatt plants.
This is where the proponents of carbon costing schemes tend to lose sight of the ball. Most proponents think that higher costs for electricity will magically compel a shift to wind, solar, or biomass power that will solve our problems. Really? As I write this, Ontario’s 870 megawatts of wind generators are collectively producing a paltry 76 megawatts of actual energy (according to the IESO’s Hourly Generator Output Report). If carbon cost proponents really want wind to be part of the big solution, they’ll have to admit that we’ll also need a lot of parallel investment in large-scale backup low- or non-emitting generation. That means nuclear or gas.
How realistic is it to expect electricity rate payers, who will pick up the ultimate tab for the higher costs that come through a carbon tax or cap and trade scheme, will want to pay for a parallel fleet of redundant generators?
Not realistic at all. If Canada is going to embark on a cap-and-trade scheme, we should think our way through it first.