The latest political skirmish over the carbon tax left out the most important facts

Judged only by its title, the "national inventory report" sounds like something produced by a furniture retailer.

In fact, it might be the second-most significant document published by the federal government each year — surpassed only by the annual budget.

The annual account of Canada's greenhouse gas emissions was released on April 14, just as most of Ottawa was fixated on the uneventful testimony Justin Trudeau's chief of staff was giving to a parliamentary hearing on foreign interference.

Six days later, with even less fanfare, Environment Minister Steven Guilbeault announced that the government would be updating its estimate of the "social cost of carbon," an internal calculation used for performing cost-benefit analyses of federal regulations.

Put together, the national inventory report and the social cost of carbon lay out the inescapable math of climate change. And they fill in some of the facts that have been missing from the latest skirmish in the interminable fight over carbon pricing in Canada.

The latest tally of emissions includes some encouraging news, at least. In 2021 (emissions data always takes a little over a year to process), Canada's GHG emissions totalled 670 megatonnes. That's the second-lowest annual total since 1996.

The total for 2021 does represent an increase of 12 Mt over 2020. But because 2020 was such an unusual year — for most of the year, the activity of individuals and businesses was severely curtailed by pandemic health restrictions — it defies comparison.

A better point of reference might be 2019. In that pre-pandemic year, Canada's emissions were 724 Mt.

Bending the curve

Measured against that baseline, 2021 suggests that GHG emissions in Canada have finally started to decline. That's certainly Guilbeault's view; he said this week that "the bottom line is that Canada is bending the emission curve downward."

The results for 2021 are at least well below what earlier projections expected emissions to be around now. A federal estimate published in 2014 estimated that Canada's total emissions in 2020 would be 727 Mt. An update published in 2016 projected Canada's emissions would be between 749 Mt and 790 Mt in 2020.

Because 2021 was also affected by pandemic health restrictions, it's hard to know exactly what a "normal" year would have looked like — or predict what 2022's data might look like. But in a presentation to a climate conference in Ottawa last week, Dale Beugin of the Canadian Climate Institute said there is evidence that recently adopted climate policies are beginning to have an impact.

He also noted that "sector-level progress isn't symmetric." That's an understatement.

Compared to 2005, Canada's total emissions have fallen by 62 Mt, but that national result obscures profound differences across six economic sectors. Total emissions from electricity have fallen from 118 Mt to 52 Mt — significantly assisted by the phase-outs of coal-powered generation in Ontario and Alberta.

At the other end of the spectrum, oil and gas emissions have risen from 168 Mt to 189 Mt and now represent 28 per cent of Canada's total emissions.

Major oil and gas companies say they're now committed to reaching net-zero emissions by 2050. But they have a long way to go and a rapidly diminishing amount of time in which to get there.

The path to 2030 — and then net-zero

Looking ahead, Beugin identified a half dozen priorities, the first three of which are creating "policy certainty," building a bigger and cleaner electricity grid and creating "emissions certainty" for oil and gas. The second of those is a massive undertaking — but it also might be the easiest of the three to accomplish.

There are steps the Trudeau government can take to reassure businesses and investors that current climate policy will remain in place, such as "contracts for difference." But ultimately it depends on political consensus and that doesn't exist — Conservative leader Pierre Poilievre is committed to repealing both the federal price on carbon and the clean fuel standard.

The Liberal government's hopes for establishing "emissions certainty" in the oil and gas sector are now pinned on legislating an emissions cap. That comes up with obvious political challenges. The idea of a cap has also been questioned by some of Canada's leading climate policy experts, who think an additional layer of regulation is unnecessary and potentially counterproductive.

But if the path to Canada's 2030 target (a cut of at least 40 per cent to Canada's emissions below 2005 levels) and the mid-century goal of net-zero is by no means assured, it's at least possible to see a way there.

According to analysis published by the Climate Institute last year, existing policies will reduce Canada's emissions to 589 Mt by 2030, 149 Mt above the national target. When policies under development are factored in, the gap becomes 93 Mt. When policies that have been promised are included, the gap shrinks to just 24 Mt.

In other words, with quick and effective action, Canada's goals will become increasingly plausible. And what Guilbeault's announcement last week underlined is why those emissions need to be eliminated.

The "social cost of carbon" is a metric that attempts to quantify the economic damage caused by each tonne of greenhouse gas emissions — the true cost of climate change. Based on the latest evidence and science, the federal government has increased its internal estimate of that social cost to $261 per tonne.

That's a large increase over the previous estimate of $57 per tonne for 2023. It's also notably higher than the current federal carbon price of $65 per tonne. (Saskatchewan Premier Scott Moe seemed unfamiliar with the social cost of carbon last week, but it has been part of Canadian and American policy for more than a decade.)

What the PBO's analysis left out

It is those two facts — the necessity of reducing emissions and the cost of unmitigated emissions — that were missing from the latest round of debate about the Parliamentary Budget Officer's assessment of the federal carbon tax. 

In a report released last month, the PBO assessed both the fiscal and economic impact of the federal carbon tax and the "climate action incentive" rebates that return the proceeds of the tax to households. In fiscal terms, the PBO confirmed that for the vast majority of households, the amount they receive through the rebate is more than the direct costs of the tax — confirming the Liberal government's central claim about the policy.

But the PBO also found that the tax would act as a drag on the Canadian economy — and when those losses are distributed across households, the economic costs exceed the fiscal benefits for most households. It is this finding that the Conservatives have seized upon to condemn the policy.

But what the PBO report leaves out is the simple (and basically undisputed) fact that, one way or another, Canada's emissions have to be reduced dramatically. The choice isn't between implementing a carbon tax or doing nothing. Even if it was, doing nothing would involve incredible costs.

The only responsible choice is between putting a price on carbon or doing something else to reduce those emissions — and that something else inevitably would have some cost as well. Most economists have concluded that a putting a price on carbon is the most efficient (least costly) way to drive emission reductions.

But regardless, it would be a mistake to assess the federal carbon tax in a vacuum because Canada does not exist in a vacuum.

Even if getting down to 670 Mt is a good start, it is also a reminder of how far Canada still needs to go. And while politicians haggling over the details of policy is inevitable, the math of climate change is unavoidable.