Now is exactly the right time to regulate oil and gas

Earlier this week, Prime Minister Harper declared that, given oil prices plummeting to $60-70 a barrel, now would be a “crazy” time to introduce regulations on the oil and gas sector.

This comes after promising nine years ago that the federal government would bring in new GHG regulations on the oil and gas sector (but failing to do so), and after committing at the Copenhagen climate talks in 2009 that Canada would reduce its GHG emissions by 17% by 2020, a target that Environment Canada now says the government has no plan to meet.

In fact, with the price of oil so low, now would be a terrific time to introduce new carbon reduction measures.

For example, it’s an ideal time to introduce a federal carbon tax. When BC introduced its carbon tax, oil was at $140 (ouch!). But with oil at $65, consumers are well placed to handle the introduction of a carbon tax (provided of course that we also introduce an offsetting carbon tax credit for low and modest income households, as modeled in this CCPA report by Marc Lee).

Indeed, from a climate perspective, the downside of low oil prices is that consumers may be less inclined to change their behaviors and burn less gas, and a carbon tax, provided it was high enough, could mitigate that.

The timing would also be ideal for governments who are panicked about what the drop in oil prices means for reduced public revenues (as oil royalties are linked to price, and a reduction in production activity reduces other tax revenues as well). Because a carbon tax is linked to the consumption of oil, which is unlikely to slow given the low price, a carbon tax could help buttress government revenues.

Most importantly though, the drop in oil prices represents a welcome moment to rethink the path we are on. It’s a reminder that linking our economic fate to volatile commodity prices is always a roller-coaster (didn’t Albertans learn that lesson decades ago?). Sound economic management ought to be about moving us away from such dependence, and certainly isn’t about panicking and rolling over on climate commitments when the oil bubble starts to burst. We’ve been given a chance – a pause in the gold rush – to move away from mindless fossil fuel expansion. That’s not crazy – that’s good sense.

Now is precisely when we should be capturing what income we can from this sector (via a carbon tax and/or other taxes and royalties), and using those revenues to expedite the transition towards a new low-carbon economy; using those revenues to fund green jobs and green infrastructure. And those taxation options should be complemented by other regulatory measures to cap carbon emissions within a defined carbon budget, to further accelerate the transition.

Topics: Climate change & energy policy