Sustainable Energy Solutions
Comments on “Carbon Pricing and
Environmental Federalism”
Matthew Bramley
Director, Climate Change, Pembina Institute
Queen’s University, October 17, 2008
© 2006 Pembina Institute
www.pembina.org
Sustainable Energy Solutions
Topics
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Scale of the climate challenge
Roles of federal and provincial governments
Elements of an effective federal plan
Criteria for carbon pricing policy
Carbon leakage and producer/consumer
responsibility
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© 2006 The Pembina Institute
www.pembina.org
Sustainable Energy Solutions
Scale of the climate challenge
 Projected impacts this century include 1m+ sea-level rise,
billions of additional people subject to water shortage, 1/3
of species lost
 “people have simply no idea how serious this issue is”
– http://site.climateletter.org/
 “limit global warming to no more than 2ºC above the preindustrial temperature”
– http://www.ccrc.unsw.edu.au/news/2007/Bali.html/
 Requires global emissions to peak before 2020
 NGOs:
 Consider “cost” of impacts is greater than cost of preventing them
 Role is to put the science front and centre
 Strong evidence that it is technically and economically
feasible to come close to science-based targets
 But doing so equitably is a formidable challenge
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© 2006 The Pembina Institute
www.pembina.org
Sustainable Energy Solutions
Roles of federal and provincial
governments
 Federal leadership required by public expectation, legal
obligation and practical need for level playing-field
 In particular, carbon pricing must not be left to provinces alone
because of the need for harmonization and for shared control of
revenues (which are “recovered subsidies” from a polluter-pays
perspective)
 Federal powers are extensive
 Provincial will to be part of a real solution varies widely
 Not realistic to wait for full agreement
 Federal government must be prepared to negotiate hard
with provinces (without being unnecessarily
confrontational)
 E.g., “carbon conditionality” of financial transfers
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© 2006 The Pembina Institute
www.pembina.org
Sustainable Energy Solutions
Elements of an effective federal plan
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Simple, broad carbon price
 Plus targeted compensation for (i) regressiveness, (ii) demonstrable carbon leakage
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Government purchase of reductions
 To reinforce the carbon price in early years in strategic sectors
 In agriculture and forestry (difficult to regulate)
 From outside Canada (safety valve, international aid)
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Regulations (e.g., vehicles, appliances)
 To overcome market failures/barriers
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Subsidies (e.g., building retrofits)
 To overcome market failures/barriers not easily addressed through regulation
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Negotiations with provinces
 To secure necessary provincial regulations
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Investments in public infrastructure (e.g., transit)
 Because part of the energy system is publicly owned
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Investments in technology R&D
 To overcome “non-appropriability” market failure
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Legislated national GHG targets, with mandatory annual review mechanism
 Needed for international negotiations, domestic public accountability, determining
stringency of individual policies
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© 2006 The Pembina Institute
www.pembina.org
Sustainable Energy Solutions
Criteria for carbon pricing policy
 Tax vs cap-and-trade is NOT the main question
 Both are a (partial) tax, one paid in $, one in carbon currency
 Good and bad cap-and-trade proposals can be more dissimilar than
good tax and cap-and-trade proposals
 Instead, I suggest the key criteria are:
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Breadth of coverage
Price (or emissions) trajectory over time
Strictness of limits on offsets (additionality, volume)
Extent of re-investment of revenues in emission reductions
Simplicity (to ensure fast implementation, clear signals and
accountability)
 Compensation for regressiveness
 Prevention of international carbon leakage
 Avoidance of unjustified exemptions from polluter-pays (=subsidies)
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© 2006 The Pembina Institute
www.pembina.org
Sustainable Energy Solutions
Carbon leakage and
producer/consumer responsibility
 Only matters if some emissions are not priced (costs cannot be passed
on)
 Otherwise, incidence of costs doesn’t depend on point of imposition
 Negotiation of national GHG targets can take into account
producer/consumer issue
 Problems with border carbon adjustments:
 “Pure” version likely has insurmountable data problems
 Look like a “big stick” to poorer countries; reduce chances of new global
climate agreement, especially if not accompanied by very substantial aid
 Because they don’t consider actual likelihood of carbon leakage, they will
result in unnecessary subsidies (e.g., do oil sands exporters need a BCA?)
 Alternative solution: focus on demonstrable carbon leakage
 Independently assess each sector’s profitability, the size of its GHG-related
costs relative to profits, the extent to which foreign competitors are subject
to carbon pricing, and the ease with which production can relocate
 Provide targeted production subsidy to relevant sectors, in a transparent
manner
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© 2006 The Pembina Institute
www.pembina.org