New Navius Research Report on Carbon Leakage and Competitive Advantage

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Navius Research released a report that details the need to balance our carbon intensity with the carbon intensity of other regions. Specifically, they noted that while Canada’s greenhouse gas abatement policies are good at reducing emissions, they can raise production costs, therefore, reducing production. This presents an issue when it comes to the concept of Carbon Leakage, especially in the Canadian context of our aluminum industry.

Comparatively to other jurisdictions, Canada has a much lower carbon intensity in this and many other sectors. If production from Canada is supplanted to more greenhouse gas intense regions, domestic emissions may be reduced while global emissions remain the same or increase. In this report, Navius looks at reversing carbon leakage by modeling reductions in corporate income taxes and how they would affect production in the aluminum sector.

The models that the research group ran saw that when corporate taxes were cut for the aluminum industry, the sector saw a 9% employment increase as well as an increase in profit. This suggests that Canada would see a net economic benefit from this type of tax reduction. Additionally, while domestic emissions went up, global emissions went down overall. This shows that Canada does have a competitive advantage when it comes to emissions from our aluminum sector.

Navius determined from their report that there are two main findings as a result of the models that they ran. First off, at a minimum, if Canada has a comparative advantage in a sector, the sector’s productivity should not be reduced because of policy. According to Navius, it would then be advantageous to increase production in Canada to offset production somewhere else. An example of this would be the emission intensities of crude oil from different regions. In Canada, our barrels have some of the lowest emissions compared to similar heavy crudes. Our diluted bitumen produces about 475kg of CO2 per barrel where Venezuela’s are about 563kg of CO2 per barrel.(https://cdn.ihs.com/ihs/cera/Oil-Sands-Greenhouse-Gases-and-European-Oil-Supply.pdf).

The second point is that in order to decrease global emissions, an increase in production would increase domestic emissions. Due to Canada’s carbon advantage, there would be a net decrease from lower intensity production. For example, if you replaced 100 barrels of Venezuela’s oil with our cleaner Canadian oil you would have 8800 kg of CO2 less. The increase in domestic emissions can also be offset somewhere else, and with new improvements to technology like carbon capture, we can continue reducing our global carbon footprint. Climate change is a global issue so it is time to look at global solutions.

To check out this research and learn more about Carbon Leakage visit:

https://qmf.afd.myftpupload.com/carbon-leakage-and-carbon-pricing/

https://www.naviusresearch.com/wp-content/uploads/2019/03/reversing-leakage-report.pdf

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