The Winnipeg-based International Institute for Sustainable Development has crunched the numbers of a range of proposals on the table.
Vice-president Dave Sawyer says the so-called 40-and-40 proposal that has been floated by the Alberta government is probably the best option, as long as it is modified so that it has a two-tier price for compliance.
Such a policy — a 40 per cent improvement in emissions intensity and a two-tiered penalty for missing the target — would cut emissions by 42 megatonnes, and cost about $28 a tonne or 42 cents a barrel.
Sawyer says the two tiers would muscle companies into actually cutting emissions rather than simply buying their way out of complying with tougher guidelines.
But the scheme would still not take Canada all the way to meeting its international obligations by 2020.
"It will get us going. Please, get going," Sawyer said in an interview. "We've been mired in inaction for far too long and we need to get going. And in time we can improve stringency and policy design."
Officials from the federal government, Alberta and key industry players have been in intense negotiations for months and months about how to best control emissions in the oil and gas sector.
Canada has committed to reducing its emissions by 17 per cent below 2005 levels by 2020, but federal and provincial policies are only in place to get halfway there — leaving a huge burden on the oil and gas sector, where total emissions are set to grow faster than in other sectors.
The negotiators are seized with finding a way to meaningfully cut emissions without making the industry uncompetitive.
All the proposals on the table centre around setting an emissions intensity target and coupling it with a price companies would have to pay if they can't meet the entire target, Sawyer says.
For intensity, proposals on the table range from reducing emissions by 20 per cent up to 40 per cent. Sawyer's paper says the top of that range is both necessary and affordable.
As for the price, the proposals are all inspired by the existing Alberta model. Companies would be able to buy offsets elsewhere or pay into a technology fund instead of actually reducing emissions themselves.
But Sawyer says that for emissions reductions to truly take place in the oil and gas sector, regulators should impose two different tiers: companies should be able to buy only 30 per cent of their target at a cost of $30 per tonne. Anything more than that would cost $60 a tonne — a price high enough that it would encourage companies to invest internally to cut emissions themselves.
Further emissions reductions would depend on how governments invest the money collected in the technology fund, and whether those investments lead to low-carbon alternatives.
The cost per barrel would be about 42 cents, and shared by the company and by governments, who would see some of their tax revenues and royalties disappear.
A separate think-tank, the Pembina Institute, has said that if Canada wants to meet its 2020 target on emissions, then the price on carbon would have to be much, much higher than the $40 price floated by Alberta.
The IISD does not disagree with that analysis, but does not assume that the entire burden of meeting Canada's emissions target should fall on the oil and gas sector.Suggest a correction