There are times – hopefully many – when threats of ecological degradation and weather destabilization, and the simple, hopeful notion of leaving a better world for future generations, are enough to inspire action. At other times, however, we require an appeal to the all-powerful bottom line. Money talks, to put it bluntly, and a new report released by the National Round Table on the Environment and the Economy (NRTEE) recognizes this important truth, and attempts to frame climate change in terms that will get policy-makers to sit up and listen: dollars and cents, costs and benefits. The report, entitled Paying the Price: The Economic Impacts of Climate Change for Canada is the first in-depth exploration of what climate change will cost Canadians, and some of the numbers are pretty daunting.

The report, for instance, examines the effects of climate change on the forest industry, and finds that, in a scenario of high climate change and rapid economic and population growth, Canada could see a reduction in its GDP of $17.4 billion, or 0.33%, as a result of reductions in timber quantity due to climate change. Ontario, with its rich stocks of northern boreal forest, is hit hard, suffering a loss of $7.4 billion. Cumulative costs of climate change on the Ontario forest industry could hit $75 billion by 2080 if we do nothing to adapt.

In our cities, climate change will increase summer temperatures and worsen air quality, leading to increased mortality and illness. An unhealthy city is an expensive city. In Toronto, the cumulative costs of premature mortality risk due to heat and air quality impacts from 2010-2100 could hit $96 billion by 2080, and increased hospital visits due to reduced air quality could cost Toronto’s health care system $285 million over the same time period.

The NRTEE report closes each chapter with strategies for adaptation, and finds, with few exceptions, that the costs of implementing the strategies are significantly offset by the economic benefits of lessening the impacts of climate change. Proactive adaptation makes fiscal sense, which is to say nothing of the many non-economic co-benefits. These benefit-to-cost ratios reinforce the position I’ve taken in recent blogs and reports on why we need to put a price on carbon; it will help to decarbonize Ontario’s economy while hastening the transition to a clean-energy future.

There is only so far that the quantification of environmental impact can take us. We reach a point where the worth of our natural world simply cannot be expressed through market transactions. As the report explains, culture, well-being, sense of place, and health are treasured entities that largely exist outside of economic valuation. That said, in terms of getting our attention and inspiring action, this report is very meaningful. By 2075, climate change could cost this country $221 billion per year. Those are stakes that anyone can appreciate, and represent a compelling call to action.

To date, Ontario’s policy responses to climate change have primarily focused on reducing carbon dioxide emissions from both the energy and transportation sectors or methane emissions from the waste and agricultural sectors. But scientific evidence points to opportunities presented by reducing emissions of short-lived climate forcers, principal among which is black carbon. Black carbon exists in the atmosphere as one component of fine particulate matter (commonly referred to as soot). Scientists and policymakers have typically focused on the health effects of black carbon emissions, which are estimated to result in hundreds of thousands of premature deaths around the globe annually. Only recently has significant attention been paid to black carbon reductions as a potential tool for climate change mitigation. The United Nation’s Environment Programme has chosen to focus attention on this issue in a recent report and the U.S. Congress directed the Environmental Protection Agency to conduct a study on black carbon’s climate and health impacts as well as mitigation options.

I’ve highlighted this opportunity in my most recent annual greenhouse gas progress report and am pleased to see the growing attention being paid to this issue. Black carbon in the atmosphere absorbs heat and thus contributes to local and regional warming, and when it settles on snow and ice it increases the absorption of sunlight which promotes melting. This effect is particularly important in the Arctic. As the ice melts, less heat is reflected out of the atmosphere and more is absorbed by the oceans. Scientists fear that this effect constitutes a potential feedback loop for climate change because as oceans become warmer, their capacity to store carbon dioxide is diminished and thus more of it ends up in the atmosphere as global warming pollution. As a Northern region, black carbon emissions in Ontario have a greater impact on Arctic sea ice and so the opportunity for climate change mitigation is greater.

Black carbon particulate emissions from a diesel generator tester in an apartment building

The major sources of black carbon emissions in Ontario are transportation (both on and off-road diesel vehicles; locomotive and marine vehicles) and residential wood combustion. Policy options are available to the Ontario government to address these sources and should be explored. For vehicles, diesel particulate filters (DPFs) are available that remove around 99 per cent of black carbon. New on-road vehicles purchased after 2007 are subject to emission controls that require DPFs, but thousands of older vehicles remain on the road without emission controls. As well, an untold number of off-road vehicles, locomotives and marine vehicles are currently operating that have not been subject to such stringent standards. Wood stoves and fireplaces in the residential sector are another major source of black carbon that can be reduced by incentivizing the change-out of older, inefficient appliances and educating consumers about the importance of using seasoned wood that burns cleaner.

All of these mitigation options are justified based on the public health benefits of black carbon reduction alone. The added benefits for the climate are just beginning to be understood. I look forward to seeing how the Ontario government responds to this climate change mitigation opportunity.

In my latest Greenhouse Gas (GHG) Progress Report I recommend that the Ontario government establish a price on carbon as soon as possible to hasten the transition to a low-carbon economy. This could be done directly through a carbon tax or indirectly through a cap-and-trade system.

Unfortunately, the government recently announced that it would delay implementing a cap-and-trade program beyond 2012 over concerns about negative impacts on the province’s industrial sector and carbon leakage.  The fear that additional costs imposed on emissions-intensive industries by a carbon price will reduce domestic competitiveness and drive firms out of the province has become especially prominent in this period of economic uncertainty.  But if a provincial cap-and-trade program ever gets off the ground regulators will most certainly protect domestic emissions-intensive industries over the short term by providing them with free allowances to reduce or eliminate compliance costs.  Over time it is expected that free allowances would be gradually replaced by auctioned allowances as other jurisdictions move to put a price on carbon.

There are also those who contend that Ontario’s rising electricity costs will cause value-added manufacturing and resource industries to set up shop elsewhere.  “All-in” electricity prices for the industrial end-user, which were estimated at 8.8¢/kWh in 2010 in the Ontario Long Term Energy Plan, are projected to increase to 9.6¢/kWh in 2012. This is more expensive than electricity prices in neighboring coal-intensive U.S. states like Michigan and Ohio, but almost identical to electricity prices in New York State. And, when one considers that Ontario’s corporate taxes and health care costs are lower than neighbouring U.S. jurisdictions, it becomes clear that the province will remain a competitive jurisdiction for manufacturing, particularly if a favourable regulatory environment for next-generation manufacturing industries (including renewable energy) is in place.  I believe that a carbon price is a fundamental element of such a regulatory environment.

Thus, as the Ontario government moves forward with the design and implementation of a carbon pricing program I believe the fear that manufacturing industries will be driven to other jurisdictions should be tempered by the reality that additional costs will be minimized in the short term. Over the long term all jurisdictions will need to impose GHG controls if we are to have any hope of averting catastrophic climate change impacts.  As an early adopter of carbon pricing, the Ontario government will help domestic industries be better prepared for the point in time at which a national or international climate change mitigation policy is agreed upon and the world’s atmosphere and ecosystems are no longer treated as free dumping grounds for global warming pollution.

As discussed in my recently released Greenhouse Gas Progress Report, I believe that Ontario must establish a price for carbon. Such an approach, whether in the form of a tax or a cap-and-trade system, is supported by the majority of energy and carbon intensive industries in Canada and is already being used in three provinces (B.C., Quebec & Alberta) to manage greenhouse gas emissions (GHGs). A carbon price acts as a signal that encourages energy consumers to reduce the carbon footprint of their energy use, whether through reduced consumption (i.e. conservation) or a shift to low-carbon energy sources, and is thus critical for de-carbonizing the provincial economy and powering the growth of green industries.

I am often asked why a price on carbon is needed. The reality is that the price we pay for energy does not include the environmental, economic and social costs of climate change. As atmospheric GHGs continue to rise beyond levels considered safe by the world’s best scientists, the prospects of preventing future impacts on water resources, food production, and human health becomes increasingly bleak. The cost of these impacts is estimated to be in the range of 5% of global GDP annually (in Ontario this would translate into $26 billion in lost economic activity per year!). Thus, while transitioning Ontario’s energy system to a low-carbon pathway could be costly in the near term, a price on carbon can help to reduce these future damages. And, the sooner that carbon is priced in Ontario, the more time Ontario families and firms will have to adapt and thrive in a carbon-constrained world.

If Ontario were to go the route of a carbon tax like the one in B.C., it would impose an additional charge on fossil fuel producers or importers based on the carbon-content of their fuel. Thus fuels with relatively high carbon content would be taxed more than those with lower emission profiles. B.C.’s carbon tax is currently at $20/tonne which translates into an additional 4.45¢/litre on the price of gasoline. $727 million was collected from the carbon tax in 2010/11 which has been used to reduce personal and business taxes to the lowest levels in Canada. Quebec’s carbon tax is similarly levied on fossil fuel distributors in the province who are required to pay a fee of 0.8¢/litre of gasoline distributed. The $200 million/year collected through the tax is used to fund the province’s Climate Change Action Plan programs.

A carbon tax provides price certainty and ease of implementation (because of the existing tax system), but results in a visible increase in prices and is thus politically challenging to implement. Ontario has apparently chosen the route of a cap-and-trade system which requires the government to establish a cap on total emissions and distribute a corresponding number of permits to large emitters such as cement and steel production facilities. A carbon market is created because firms that emit less than the permits they hold can sell them to firms that are short on permits.

Properly designed, either cap-and-trade or a tax can provide significant economic benefits over the long term. Carbon revenues generated by a tax or the sale of emissions allowances can be used to reduce other taxes (i.e. income or corporate tax), reduce the deficit (as is done in Britain), or contribute to further low-carbon energy investment in the province. And, with Ontario sending more than $13 billon/year to outside jurisdictions to import gasoline (not to mention natural gas and other fossil fuels), a carbon price can help keep more money in the province now and shift consumption away from carbon-intensive imported fuels over the long term.