02/19/2013 02:56 EST | Updated 04/21/2013 05:12 EDT

Canada's Carbon Tax Options 'Politicized' When Reason Needed: Report

FILE - In this Jan. 19, 2012 file photo, smoke rises in this time exposure image from the stacks of the La Cygne Generating Station coal-fired power plant in La Cygne, Kan. This year the nationís weather has been hotter and more extreme than ever, federal records show. Yet there are two people who arenít talking about it, and they both happen to be running for president. In 2009, President Barack Obama proposed a bill that would have capped power plant carbon dioxide emissions and allowed trading of credits for the right to emit greenhouse gases, but the measure died in Congress. (AP Photo/Charlie Riedel, Filr
OTTAWA - The Conservative government has politicized its policy options at a time when harmonized federal and provincial carbon policies are needed to cut emissions as cheaply as possible, says a new report.

An increasingly fragmented national approach to carbon policy could result in higher costs, according to the International Institute for Sustainable Development.

The Conservative decision to go with complex, sector-by-sector regulation of emissions while provinces experiment with market-driven policies such as cap-and-trade systems, carbon offsets and carbon taxes makes for a confusing patchwork, said the year-in-review report, released Tuesday.

"The rules of this new game are not so clear, leaving uncertainty, confusion and the risk of unintended consequences in the face of increasing regulatory complexity," say the report's three authors.

"In 2013 we can expect a sense of rising unease with the emerging system."

The report does not take the Conservative government to task, and in fact praises Ottawa for "more policy action in 2012 by the federal government than in any previous year." It also states there were early signs of policy co-ordination between jurisdictions.

But the study goes on to make it clear that the anti-carbon tax rhetoric from Stephen Harper's Conservatives won't help harmonize policies.

"The federal government’s 'job-killing carbon tax' refrain in September caught many by surprise, casting a shadow of uncertainty over ongoing consultations," said the report from the Canadian-based, international think tank.

"The government's position left no doubt that regulation is the word."

David Sawyer, one of the report's co-authors and the institute's vice-president, said in an interview that regulations are usually viewed by economists as less efficient and cost-effective than market mechanisms for reducing carbon.

"The question is, can the regulations that are emerging have flexibility?" said Sawyer. "To what extent can we design the regulations to lead to low-cost outcomes?"

The Harper government has pounded away for months at a proposed NDP cap-and-trade policy that Conservatives claim amounts to a "job-killing tax on everything."

The Conservatives proposed their own cap-and-trade system in their 2008 election platform, but have since renounced any such policy in an effort to demonize New Democrats.

By conflating cap-and-trade with carbon taxes and denouncing both, the Conservatives have shut the door politically on options just as a wide-open carbon policy debate appears about to bloom.

U.S. President Barack Obama used his State of the Union speech last week to seek a "bipartisan, market-based solution to climate change," and his ambassador to Canada followed up by flatly stating the message was directed at audiences north of the border as well.

Obama's fallback position, if Congress balks, is regulatory change — which could look similar to the Conservative proposals.

The European Union is currently debating carbon taxes.

Alberta's Progressive Conservative government openly mused about raising the province's $15 per tonne price on carbon in the aftermath of Obama's speech.

And British Columbia appears to have settled in to its own carbon tax model without the government falling or the economy collapsing.

The Obama administration must also make a decision on the controversial Keystone XL pipeline that would carry Canadian oilsands bitumen to refineries on the Gulf Coast.

And the Harper government appears under pressure to restore Canada's international environmental credentials in order to better access foreign energy markets.

All those factors put a lot of pressure on carbon policy options.

While Canada's many carbon policies will provide a petri dish for experimentation on what works well and what does not, at some point common best policies will be needed, the report says.

"We should not lose track, however, of the long-term policy objective to keep costs low while achieving (greenhouse gas) reduction targets," said the institute.

"To do this, a unified, harmonized climate policy both within Canada and beyond its borders will be needed."

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