On Monday, the Conference Board of Canada released a report on carbon leakage, one of the possible side effects of carbon pricing in Canada.
The report, Tipping the Scales – Assessing Carbon Competitiveness and Leakage Potential for Canada’s Energy Intensive and Trade Exposed Industries (EITEI), assesses the potential size and implications of carbon leakage in Canada.
According to the CBoC, carbon leakage occurs when companies move their operations from Canada to other countries to avoid carbon pricing. Such moves would result in a loss to Canada’s economy and a shift, not a reduction, in global GHG emissions.
Carlos Murillo, senior research associate at The Conference Board of Canada says carbon leakage has been studied extensively in the European Union and elsewhere. He adds “Despite growing use of carbon pricing in Canada, little work is publicly available on quantifying the potential for carbon leakage here.”
Industries that rely on fossil fuels as inputs and that face a lot of global competition are known as emissions-intensive and trade-exposed industries, or EITEIs. 13 EITEIs are identified across Canada including primary industries, such as oil and gas production, mining, and forestry, electric utilities, and various manufacturing industries – including wood, pulp and paper, chemicals, metals, and cement products.
The CBoC says these industries are the most at risk of leakage. They also account for 10 per cent of the Canadian economy, but have greater significance to Western Canada’s and the Atlantic province’s economies.
EITEIs also account for nearly half of Canada’s energy use and GHG emissions. Under Canada’s carbon pricing policies, carbon compliance costs for these companies could reach $5 billion. This could potentially displace $10 billion in economic activity, 50,000 jobs and 19 mega-tonnes of GHG emissions.
Among EITEIs, carbon pricing competitiveness pressures are greatest for the forestry, wood, pulp and paper products and oil and gas industries. The CBoC says the magnitude of potential carbon leakages is greatest in the primary metals, chemicals, pulp and paper and non-metallic mineral products manufacturing industries, as well as for the least GHG-intensive oil sands projects and for natural gas production.