A recent climate change report concludes that Canada can pull off a controversial double win of achieving both carbon reduction targets and economic growth. But a prominent economist warns of a potential drag effect instead, and says climate concerns are not top of mind with a recession battered public anyway.

The study, Climate Leadership, Economic Prosperity was funded by the TD Bank and co-written by sustainability stalwarts the Pembina Institute and the David Suzuki Foundation and based on economic modeling from M.K. Jaccard and Associates.

Says Pierre Sadik, Ottawa-based manager government affairs for the Suzuki Foundation, “the key element of the report or any sustainability program to reduce greenhouse gas emissions is the realistic pricing of carbon.”

“The pricing of carbon is equal to a major tax hike,” says University of Calgary economist Jack Mintz. “It will increase the cost of almost everything we buy. And the benefit of controlling climate change and reducing carbon emissions is way down the list of what people want. People are starting to realize that there is no free lunch. We should not let the report pull the wool over our eyes.”

Mintz takes issue with the report’s premise that the level of Canadian capital spending will not change during the next decade. “It’s a far-fetched assumption,” he says. “If the price of carbon rises, then the demand for capital will go down, as will rates of return on investment. As a result, capital will flow out to other parts of Canada or out of the country and some of it will go into savings.

“Capital spending levels will not remain the same.”

Overall, the report states that by 2020, under two different sustainability strategies, Canada’s national GDP will grow by more than 20 per cent while reducing greenhouse gas (GHG) emissions to meet pre-set targets below 1990 levels in one plan and 2006 levels in the other. As well, the report indicates at least 1.8 million jobs will be created, boosting national employment levels by more than 10 per cent.

Whatever political action is taken, accountants will likely prove pivotal to evaluating its effectiveness. “Regardless of specific regulatory requirements, it is our position that independent verification is needed to assure that corporate greenhouse gas inventories as reported to any government are reliably stated. It would be unfortunate if financial statement audits were to call into question the reliability of the system,” says Canadian Institute of Chartered Accountants spokesperson Tobin Lambie.

“Our disagreement with the report is over its general tenor that we can regulate GHG emissions with little negative impact on the economy, in particular its underestimation of the impact on the economy of Western Canada,” says Roger Gibbins, Calgary-based CEO of the Canada West Foundation (CWF).

Specifically, Gibbins singles out the report’s rosy forecast for national employment levels. It concludes that various regions will be affected differently. However, if as forecasted, reduced investment in Alberta does result in job losses, Gibbins believes that other regions of Canada are not likely to pick up the slack. “The Ontario economy, which is not as vibrant as it was, will be in no position to make up for many of these lost jobs,” he says.“Instead of forecasts for a seamless transition from one sector or region to another, we need to see greater realism in our view of the Canadian economy in 2020.”

In response, Pembina Institute director Marlo Raynolds states that Alberta’s economy will continue to grow, but concedes not at the rates of the last 10 years, which he and others, including Preston Manning, consider unsustainable. “A business-as-usual, do-nothing approach to emissions is not an option,” he says. “We need to develop a portfolio of policies. And to be serious by 2020, we need set a carbon price of at least $100 per tonne.”

Another source of contention arises from concerns over the two co-authoring groups’ foray into business environmentalism. To some, that shift can lead to strange political bedfellows.  

“To me, business environmentalism seeks to limit the introduction of fundamental systemic change — not too much of it too soon,” says David Peerla, Thunder Bay, Ont. based native rights advocate.

He has believes that the Pembina Institute and the Suzuki Foundation are more interested in playing the “inside-Ottawa, inside-Victoria, inside-the-corporate-boardroom game” than traditional, grassroots environmentalists, who have sometimes engaged in civil disobedience to push for changes.

As a result, Peerla believes the Suzuki Foundation has shifted its overall strategy to focus more on environmental concerns and less on social justice issues such as poverty. “Groups such as the Pembina Institute and the Suzuki Foundation are moving to the vital centre while others such as Greenpeace remain at the margins,” he says.“It’s a myth that the movement is unified,” says Peerla. “In fact, it contains a great deal of diversity in ideas. It’s an ecology with its own division of labour. It’s a lot like democracy.”

Although the report itself does not endorse any specific carbon-pricing approach, Sadik leans toward a legislated carbon tax, not a market-driven cap and trade system.

That’s because the report outlines the benefits from a sustainability program that includes using 50 per cent of government revenues from carbon pricing for public investment in green technology, supporting vulnerable industries, assisting low-income citizens and reducing income tax rates.

Such an approach would also function under cap and trade because governments would still enjoy huge revenue flows from the selling of carbon credits. According to the report, by 2020 the government would be raking in somewhere between $45 billion and $70 billion per year.

“To achieve those totals would require the government to auction off all credits rather than granting some of them free to major emitters,” says Sadik.

The CWF’s Gibbins favours a national carbon tax. “It is conceptually cleaner because it focuses on consumption. If you do not buy, you don’t have to pay. It’s the best way to use the price system to change consumer behaviour.”

Peerla is a believer as well. “I am opposed to a cap and trade system because it involves too many free permits from government grants and an excess of get-out-of-jail-free cards for polluters,” he says. Also, I want to keep it out of the hands of Wall Street players such as Goldman Sachs, which forecast a $3 trillion market for such transactions.”

(The Waxman-Markey Bill currently before the U.S, Senate provides generous exemptions to major carbon emitters such as coal-burning utilities).

But Peerla proposes imposing the carbon tax at source — at the wellhead, not at the pump. “That would increase the transparency and accountability of achieving environmental sustainability,” he says.

However, Mintz disagrees since it would put all carbon reduction responsibility on producers. Also, he believes it would create disadvantages for Canadian exporters. Buyers would switch to overseas competitors in countries without such laws.

Still, all sides agree that not much will happen until elected officials, especially federal ones, become more involved.

“Politicians are caught in a bind,” says Sadik. “They are wary of bringing in unpopular policies that might deliver benefits that will only show up in the mid- to long-term.

“Most of them look only as far ahead as the next election.”

Mintz takes an even dimmer view. Although he believes that a carbon tax makes more sense, he concludes that in Canada it is a dead issue. As proof, he points to voters’ rude rejection of the Liberal Party’s plan featured in the 2008 federal election.

That leaves cap and trade. If the U.S. decides to adopt it, Canada will likely have to follow suit. But Mintz now believes that the U.S. might wind up doing nothing. “The U.S. Congress is currently spending all of its time dealing with health care,” he says.

“If the U.S. does not pass climate change legislation before the 2010 mid-term elections in November, and if the Democrats lose a few senate seats, then passing such legislation later will be difficult.”

In addition, politicians cannot look to the recent UN Copenhagen climate change conference for guidance. “Economic concerns have trumped the climate-change agenda,” says Gibbins. “After Copenhagen, I have seen a diminished political will to deal with these issues. Most countries are still coping with the economic recovery, which is more prolonged than expected.”

Canada still has a long way to go. “The Waxman-Markey Bill is 900 pages long,” says Raynolds. So far, there’s been nothing from the Canadian government.

“That may change with the March 4 federal budget.”