Toward a low-carbon economy: The Costs and Benefits of Cap-and-trade

Institute of Competitiveness and Prosperity
http://www.competeprosper.ca/work/working_papers/working_paper_25

[Toronto Star]  Over the last decade, in the absence of federal leadership, Canadian provinces have gone their own way on carbon pricing. Alberta chose a unique carbon pricing system, British Columbia implemented a carbon tax, and Quebec launched a cap-and-trade system which Ontario will soon join. Others are waiting in the wings, either weighing their options or vehemently opposed. As a result, Canada’s environmental standing fell and full economic potential went untapped.

Now that the country has an engaged federal government that is determined to act on climate change, things are likely to take a new direction. Provinces that aren’t pursuing any form of carbon pricing will likely be asked to do so. The current musing is that the federal government will set a $15 carbon tax to act as a minimum carbon price. But is a national price floor enough, or should the federal government consider other options? The problem is that $15 is not enough to drive the deep emissions reductions needed. Without a hard cap, population and economic growth will drive growth in emissions. Furthermore, it is hard for governments to commit to continually increasing a tax; whereas it is not too difficult to continually tighten the cap in accordance with emissions targets.

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