Since the start of the pandemic, the federal government has been looking for ways to promote economic recovery all while minimizing the impact on employment. Wage subsidies to the left, financial aid to businesses to the right, assistance for seniors here, help for students there — it’s a veritable buffet of measures.
To this must be added the golden rule for public policy: First, do no harm. Yet the existing regulatory framework, and rules likely to be added to it, are in fact harmful, and should be reassessed. This is the case, for instance, of the Clean Fuel Standard (CFS) which will be made public this fall.
The visible objective of the CFS is to reduce greenhouse gas (GHG) emissions all while favouring the use of low-carbon fuels, energy sources, and technologies. Companies will have to respect the Standard either through their own efforts or through the purchase of credits from other companies that emit less carbon.
Although the intention behind this energy policy may be laudable, its format will be detrimental to the Canadian economy, while its effect on the environment is far from certain. The Standard is meant to contribute to Canada reducing its GHG emissions to 30% below their 2005 level by 2030. Canada would become the only country in the world to include natural gas and propane in such a policy, placing numerous Canadian businesses at a competitive disadvantage.
On top of the very limited 10-year deadline to bring GHG emissions 30% below the 2005 level, the Standard will not replace federal and provincial environmental policies already in place; it will complement them. This regulatory duplication will be costly both for companies and for consumers.
Indeed, the CFS will have the effect of increasing production and transport costs for companies using fuels like natural gas, which represents a very large number of companies. And a substantial portion of the bill will be passed on to consumers.
In the manufacturing sector alone, 1.7 million jobs will be affected in Canada, including 300,000 in Quebec. It is impossible to say with any reasonable degree of precision at this stage what portion of these jobs would be lost. Yet one thing is clear: The implementation of this measure will certainly have a negative impact on the level of employment in the manufacturing sector and the Canadian economy in general since it will add on an extra layer of costs and constraints.
On top of its negative economic effects, its ecological impact remains ambiguous. A major factor that the CFS seems to omit is that climate change is a global phenomenon, not a national one. After all, Canada is responsible for just 1.5% of global GHG emissions.
While a regulatory environmental framework is necessary and desirable, the CFS would make countries like China and India more attractive. We could therefore see carbon leakage: Canada’s emissions would fall, but given the possible relocation of local companies, the net global effect could well be negative.
The current COVID-19 situation is already adding a number of obstacles to the Canadian economy and international trade. The federal government should encourage economic recovery by being more flexible, not by making the current regulatory framework more restrictive. The CFS will be an extra hurdle for Canadian companies struggling to emerge from the pandemic.
Let’s hope that the government reconsiders the CFS, and does a better job of analyzing its future energy policies by their potential results, and not only by the intentions behind them. The current buffet of measures is already leaving many companies far from satisfied; there’s no reason to add to that a bitter aftertaste.
Miguel Ouellette is Economist at the MEI and the author of “The CFS: A Measure That Will Hurt Canada’s Economic Recovery.” The views reflected in this op-ed are his own.