Final report from Canada’s Ecofiscal Commission recommends stringent carbon pricing to reach 2030 GHG goals

bridging the gapOn November 27, the Ecofiscal Commission announced that their latest research report, Bridging the Gap: Real Options for Meeting Canada’s 2030 GHG Target  will be their last.  This final report brings to an end five years of research and publication which has centred largely on the cost effectiveness and optimal design of carbon pricing for Canada.   Bridging the Gap  recommends that “If governments wish to meet their climate goals at least cost, they should rely on increasingly stringent carbon pricing” – steadily increasing the carbon price by around $20/tonne every year from 2023 until 2030. The next best option is increasingly stringent, well-designed, flexible regulations, including for example, the Clean Fuel Standard. The report argues that “It’s tempting to think that alternatives to carbon pricing will cost us less. But their costs are hidden and actually cost us more. …. Our modelling shows that carbon pricing will grow Canadian incomes on average by $3,300 more in 2030 relative to a policy approach that relies on a mix of subsidies and industry-only regulations…No matter what policy tool—or combination of tools—we use to achieve Canada’s 2030 target, policies will have to be significantly more stringent than they are today. The regulatory approaches we model, for example, require halving the emissions intensity of industrial production by 2030.”

The report provides new forecast results using Navius Research’s GTECH General Equilibrium economic model, to cost and evaluate three options for climate policy which would allow Canada to meet its 2030 GHG target: #1: Carbon pricing with revenues recycled toward percapita dividends and output-based pricing for EITE sectors; #2: A range of regulations and subsidies applied across the entire economy; #3: A range of regulations and subsidies, excluding those that would result in direct costs for households.  Although the authors acknowledge that impacts will be felt on jobs, especially in emissions intensive industries, employment impacts are not estimated or discussed.

Cap-and-Trade or Carbon Tax?

Recent reports have examined the strengths and weaknesses of the two systems. On April 7, the EcoFiscal Commission released The Way Forward: A Practical Approach to Reducing Canada’s Greenhouse Gas Emissions which employs policy analysis and new economic modelling to reach recommendations that every province should put a price on carbon, that existing and new policies should increase in stringency over time, should be designed to be as broad as practically possible, should be tailored to each province’s unique economic contexts and priorities, yet should be designed for longer-term coordination.

On April 13, Clean Energy Canada released Inside North America’s largest Carbon Market: Top Lessons from the Front Lines of Quebec’s Fight Against Carbon Pollution. Together with their February report, How To Adopt a Winning Carbon Pricewhich focused on British Columbia’s carbon tax, Clean Energy Canada provides what they call “under the hood” comparisons of the  two approaches to carbon pricing. 

 Sustainable Prosperity also weighed in with two Briefing Notes on April 23; Briefing Note #1

summarizes the rationale for pricing carbon, and the main policy approaches i.e. carbon tax and cap-and-trade. Briefing Note #2 reviews the key policy design criteria and considerations, and how they differ across approaches. 

A New Commission with a Prescription of “Ecofiscal” Policies for Canada

Canada’s Ecofiscal Commission was launched on November 4, with the release of a report which makes the economic case for a new suite of Canadian policies at the municipal, provincial and national level.

“Ecofiscal policies correct market signals to encourage the economic activities we want (job creation, investment, and innovation), while discouraging those we don’t (greenhouse gas emissions and pollution of our land, air, and water). They use prices to help companies and individuals make decisions that take the true value of our environmental assets into account.” The Commission describes itself as independent, and representative of all political viewpoints; this manifests itself in the membership, which includes prominent former politicians Jean Charest, Bob Rae, Preston Manning, Sheila Watt-Cloutier, and Mike Harcourt. It is housed at McGill University, and led by Professor Chris Ragan of the McGill University Department of Economics (formerly a special adviser to the Bank of Canada).

LINKS
View the

 
Smart, Practical, Possible: Canadian Options for Greater Economic and Environmental Prosperity, Inaugural Report of  the EcoFiscal Commission (English Version / French Version).
 
Chris Ragan is interviewed by Tyler Hamilton of Corporate Knights magazine.