Ottawa should come clean on concrete figures for a clean fuel standard (CFS) or risk further muddying economic cost waters and prematurely advancing too far down the road, suggests a recent report by C.D. Howe Institute.
The federal government “has released neither a clear rationale for the proposal nor an economic costing of it,” argues Benjamin Dachis, C.D. Howe's associate director of research and author of “Speed Bump Ahead: Ottawa Should Drive Slowly on Clean Fuel Standards”.
Ottawa's plan to have in place a CFS by 2019 means “refiners and importers of fuels would be required to ensure that the mix of fuel they sell is below a mandated maximum carbon intensity,” the report explains. The proposed CFS would apply to all fuels, meaning liquid transportation fuels as well as gaseous and solid fuels used by industry and buildings.
Federal policy-makers would be well-advised to examine the inherent limitations and potential economic costs of a CFS system in advance of any such adoption, Dachis suggests. A good place to start would be to complete and release federal estimates of the economic cost.
“Instead of committing to such a policy before all the costs are known, Ottawa should undertake a comprehensive cost/benefit analysis and feasible compliance modelling for a CFS, along with an economic costing of the plan in addition to a carbon price, both for businesses and for households, relative to a simple price on emissions,” the report notes.
The report argues a CFS should only be considered if effective carbon pricing becomes politically unachievable and if Ottawa can show a CFS is better than some other means of reducing emissions. Price on emissions, such as a carbon tax or cap and trade regime, “is the lowest-cost way to reduce emissions in the long term,” the report notes.
As such, it is recommended Ottawa favour a price on emissions over a CFS.
Ottawa should also be mindful of policies that are effective when targeted at households, but burdensome for businesses, particularly emissions-intensive, trade-exposed businesses.
“Ottawa should proceed with a CFS only after a clear case remains for such a program as a complement to carbon pricing. Unless it takes these steps, the CFS is a policy tool in search of a rationale,” the report emphasizes.