It has been a busy 12 months at the crossroads of the environment, the economy and society, both in Canada and around the world. We could be forgiven for wanting to take a moment to get our bearings in this new landscape, as COP22 (Conference of the Parties on climate change) in Marrakesh kicks off.

In March, the first ministers issued the Vancouver Declaration, with a goal of a 30 percent reduction in greenhouse gas emissions from 2005 levels by 2030. The group also agreed to have Canada’s carbon emissions approach zero by 2050 – a goal that can be characterized as “deep decarbonization.”

In June, the leaders of Canada, the United States and Mexico committed to fostering greater integration of North American climate policy through joint initiatives. They also agreed to advance clean and secure energy, invest in innovation, support clean and efficient transportation, implement the Paris Agreement on climate change, and build greater cooperation within the G20.

This fall, a succession of events built on those commitments. The G20 summit communiqué in September included reference to internalizing the cost of carbon externalities (carbon pricing) and the need for “green finance.” Green finance enables the financing of investments that provide environmental benefits, by both public and private financial institutions and assets in the financial system. These environmental benefits include reductions in air, water and land pollution; reductions in greenhouse gas (GHG) emissions; improved energy efficiency and resource productivity; as well as adaptation to climate change.

On October 4, 55 percent of the nations (or “parties”) representing 55 percent of global emissions ratified the Paris Accord, meaning the agreement went into force. The following day, the federal government’s Pan-Canadian Pricing on Carbon Pollution established a minimum price on carbon, to be implemented by January 2018.

The response to the carbon-pricing announcement was immediate. There was broad support among elected officials and business leaders, but there were also politicians and business people who voiced concerns that carbon pricing would decrease the competitiveness of Canadian exports by increasing the cost of energy inputs for natural resources and other commodity products.

An internalized price on carbon will become a competitive advantage for trade between countries that do have a price on carbon.

What may be less obvious is how an internalized price on carbon will become a competitive advantage for trade between countries that do have a price on carbon. With the Paris Accord entering into force, many countries in the world are now considering putting a price on carbon. Soon, legal and regulatory frameworks will motivate established industries around the world to embed the price of carbon into their products.

Business and public leaders are right to ask how, in the move towards decarbonization and carbon pricing, will there be fairness for international front-runners. How will governments safeguard their industries from cheaper imports that do not bear a price on carbon?

Border carbon adjustments will be one way to address this. Borrowing a concept from the world of international trade, a tariff-like adjustment would be applied to imported products (for example, cement) on which no carbon price had been paid. A border carbon adjustment would level the playing field as countries enact carbon pricing regimes, and could create an incentive for laggard states to collect a price on carbon themselves rather than allowing the countries importing their goods to do so.

Canada has more reason than most countries to move swiftly to internalize carbon prices for its global exports, and in the process achieve zero carbon emissions by 2050. In 2014, Canada’s total exports of $500 billion represented about 25 percent of national GDP. More than three-quarters of these exports have a high associated climate risk, whether it is our $140 billion in hydrocarbon exports; the $100 billion in other natural resources such as minerals, base metals and wood that create hydrocarbons as they are extracted and transported to global markets; or the more than $60 billion in agricultural and food products that have significant energy inputs. The world will continue to need Canadian resources and goods, and producing these goods with lower carbon emissions as soon as possible is one way of safeguarding the jobs and livelihoods associated with them in the long term.

Beginning now to envision these sectors within a deeply decarbonized world will enable us to be ready with goods that have been produced within a carbon-pricing regime. Climate-related disclosure standards and regulations will help corporations reduce the carbon intensity of their operations.This should be part of Canada’s transition plan to prepare for a world in which carbon emissions must approach zero. Deep decarbonization of our economy should be Canada’s 21st century moonshot.

Focusing scarce innovation dollars on deep decarbonization would enable us to focus our energies on reducing the carbon intensity of established industries.

This means we need to make some choices, right now. For example, focusing scarce innovation dollars on deep decarbonization would enable us to focus our energies on reducing the carbon intensity of established industries and on scaling up companies that can enable decarbonization. The federal government has slated $800 million dollars for funding its innovation agenda. Should part of this be tied to decarbonization solutions, sector commitments to decarbonization and regulatory alignment? This would require working across ministries to deliver on climate goals, productivity and economic resilience at the same time.

As society moves towards the middle of the 21st century, we live with more uncertainty every day. We worry about how our children will pay for housing, and about providing for our own retirement. We are working harder and longer, hoping that what we are doing is right for today and for the future. If we were to rally around a common goal, that of accelerating the decarbonization of our economy, we would both meet our international commitments and safeguard the livelihoods of Canadians now and in the future. We could move beyond living with unsettling and unspecified “carbon risk,” to proactively sizing up what the risk to our society and economy would be if we act too slowly while the rest of the world moves on carbon pricing. We must move now and get ahead of the curve.


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CĂ©line Bak
Céline Bak president and founder of Analytica Advisors. She is an expert on climate change, finance, infrastructure and low-carbon innovation with 30 years of experience in more than 25 countries.

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