Where are we?
What have we learned?
Where should we go?
What next?
“Economic perspectives”
Nancy Olewiler
1
Where are we?
► History
matters: we’ve seen the backstory,
the numbers and gaps between reality and
goals & none of it is pretty
► Perpetuating the ‘Canadian way’ –
fragmentation, pretense of action through
voluntary/weak regs, scare tactics: threats
of ‘breaking up the country’, creating
recessions, leading to public confusion
about the relative merits of policies
2
Reasons given to do nothing
► “I’ll
deal with climate
change when I see it
happening – isn’t it
good for Canada to be
warmer!”
► “Why should I pay
when our emissions
are such as small
share of the world’s?”
► “I’ll
wait until I see
other countries taking
real action on climate
change”
► “We don’t have time or
money or information
to deal with climate
change right now, it
will be too costly for
the economy”
3
Where are we?
► But,
for the first time in Canada, we have
had discussion of pricing policies rather than
the pretense that voluntary initiatives and
incentives alone will reach goals.
► Will we be able to continue or enhance the
discussion & support brave leaders, or
► Do we have to go ‘underground’ & disguise
pricing policies?
4
What have we learned: some
economic fundamentals
► Properly
done, there are many benefits from using
pricing policies (cost effective, revenues), but…
► Uneven distribution of costs (AB and SK)
► Amorphous benefits (with widely different regional
perception – pine beetles bad, losing
manufacturing jobs due to climate policy = bad)
► Free riders: people are worried about destroying
the world but no one wants to pay and we’ll vote
against anyone who tries to make us pay (or tells
the truth)
5
What have we learned: more
economics
► It
will cost a lot to significantly reduce
emissions and we need technological
change
► Any policy that prices carbon in some way
will have an unequal distribution across the
country, hence the fiscal federalism issues
need to be addressed and with luck, can be
6
What have we learned: some
viewpoints about policies
► Corporate
sector: give us a predictable policy that
we can plan for, price certainty
► Financial sector: looking for a new ‘market
opportunity’  C&T
► With C&T, design is complex and while much can
go wrong, these markets can work and may be
one of the ways to fool the public and maybe we
can even make it into a tax
► Or maybe we should look more at things like RPSs
& PBFs because public’s preferences are inversely
related to experts. Don’t want prices, want regs
that may lead to very costly
7
What have we learned: law & politics
► Lawyers
have better slides than economists,
except Rick Hyndman
► Cooperation may not be necessary but if doesn’t
happen, will probably cost a lot more to reach
targets
► Nonetheless, we will probably continue to have a
mix of policies across country at least in the short
term and this may be ok or really bad, but is the
alternative of a national program worse?
► We might be forced to act by international
pressures and potential trade actions
8
Where should we go: general issues
► All
the carbon models say the longer we
wait, the more costly any policy
► Design a system that minimizes chance of
legal challenges or undesirable legal
decisions
► Design a system that is cost effective &
reduces emissions (it actually works)
► Fragmented system will likely be more
economically costly than national
9
Where should we go?
► Some
form of broad pricing (however disguised)
 Start low and rise over time
► Some
fed/prov design considerations:
 National floors with provincial options for greater
stringency
 Common price across the country or NA – means
national C&T or “tax”
 Sharing the revenues: number of options discussed
► One
caution: Canada is not the US
10
Where should we go: options?
► Carbon
tax versus Cap & Trade (C&T)
►Many
examples now of both in operation
►Is tax really dead?
►Implementation: time to develop policy + fed/prov
allocation, eg sharing of ‘price’ – feds give up 50%
► Carbon-added
Tax Tariff (CATT)
consumption tax
 Measurement challenges, but less regional mess
► Other
regs as complements or substitutes
11
Where next?
► We
need to expand the dialogue – this
better be the beginning of the discussion,
not the end; there are many supporters for
pricing carbon, the glass is still half full and
the clock is ticking…..
12
Climate change is already here
13
Photos from Don Haley & Natural Resources Canada