Tag Archives: Carbon tax

A New (Emissions) Trade Deal Environment

JIM MCNIVEN: THOUGHTLINES
September, 2016

Ban Ki-moon, Secretary-General of the United Nations, delivers his opening remarks at the Paris Agreement signing ceremony on climate change at the United Nations Headquarters in Manhattan, New York, U.S., April 22, 2016. REUTERS/Mike Segar

Ban Ki-moon, Secretary-General of the United Nations, delivers his opening remarks at the Paris Agreement signing ceremony on climate change at the United Nations Headquarters in Manhattan, New York, U.S., April 22, 2016. REUTERS/Mike Segar

In the 1980s, I was involved in the first flush of free trade enthusiasm. Ronald Reagan had mused about having a free-trade zone from Alaska to Cape Horn and Macdonald Commission in Canada, under Pierre Trudeau’s government, proposed a free trade agreement with the United States. The CUSTA, as it was called, was signed in 1988, followed up by the inclusion of Mexico in NAFTA in 1993. All kinds of other initiatives were taken elsewhere, notably in the creation of the EU. I never lost my interest in the subject, as freer trade brought millions, maybe billions, of people out of terrible poverty.

Now these arrangements are under threat. The UK wants out of the EU, Candidate Trump wants to renegotiate NAFTA and almost everyone except President Obama wants to turn down the Trans-Pacific Partnership. Trade is ‘out’. Global warming is ‘in’.

But wait a minute. This month, the Canadian province of Quebec, along with the Western Climate Initiative, made up of the State governments of California, Oregon and Washington, announced an agreement with Mexico to have it join their trading club. This trade zone will deal in what is called a cap-and-trade (C&T) system. As well, the EU has a similar system, the EUETS, which presumably will lose a member with Brexit, though I’d bet this bit, amongst others, will stay in place.

As a trade deal, presumably, Quebec could sell surplus emission rights to California, for instance—or Mexico. We could call this NAETA, the North American Emissions Trading Agreement, to distinguish it from NAFTA. It is fascinating to see these new international trading agreements go on without the large national profile players at the negotiating table.

What seems to be going on is a concerted effort to link all kinds of jurisdictions around the world in C&T systems, a kind of global trade zone for controlling greenhouse gas emissions. And this kind of trade seems to be on the side of the angels, where buying and selling stuff is not. Weird.

The logic behind a C&T system is that the jurisdictions set an emissions cap for the territory under their control. Generally, this would be based on statistics about the emissions levels for some past years. Then, different emitters would have their shares identified and capped. Over time, violators would be fined, unless they bought emission rights from others who under-emitted that year. An alternative way to distribute permits would be for the jurisdiction simply to auction them off, like some places do with the electromagnetic spectrum.

Excess rights could also be traded amongst those jurisdictions that are parties to a given agreement. Then, over time, the overall cap levels in each jurisdiction would be reduced and eventually we’d get to lower levels of global warming. Keep in mind the world has been warming slowly since the Ice Age ended. All we’ve been doing is to speed up a natural process.

You may have noticed that the C&T system is based on a kind of regulatory control that just might be prone to lobbyists and voter pressure. Can’t meet your cap? Then maybe you’ll have to close down your company or move elsewhere; this being a rough equivalent in free trade lingo to moving to a low-wage country. Then, Voila!, there is a miscalculation discovered in the capping numbers and problem solved.

The alternate popular approach to controlling emissions is a carbon tax. This is a straight tax on the production of materials that have varying degrees of emissions by final users. It is usually expressed in terms of a tax on tons of potential emission-producing materials mined, pumped or otherwise made available, if the focus is on the raw materials, or on the tons of gases produced by final users. Normally, the first is preferred because there are fewer raw material producers than there are consumers and so collection is easier.

The expectation is that such a tax would make everyone less prone to use greenhouse gas producing products and for producers to move to more efficient production processes. The tax is easier than a C&T system to administer—add it to the GST in varying amounts, for instance—but it is prone to tax competition between jurisdictions. Move your plant here; our carbon tax is lower than yours.

The anti-trade people are dismissive of the economists who use their models and data to show that there are gains from trade and that technological change accounts for more disruption than foreign competition. Yet these same people can justify ‘carbon pricing’ mechanisms by using the same general logic as is used in goods trade.

That is, if you raise the price of emissions high enough, the rational consumer will look to alternatives. You can ‘starve the beast’ by making it too difficult for people to feed it with their purchases. Countries benefit from carbon pricing. The opposite is found in free trade; the beast gets fatter if you lower the price for feeding it. Countries benefit from free trade. Both logics share the same base.

The problem is that we live in a democracy, where people are unlikely to behave in accord with the rational model. There is a whole area of behavioral economics devoted to this. All the ‘fast thinking/slow thinking’ research also points up how different people really are from those models we commonly rely upon.

Applying carbon pricing models to human behavior may be appealing at the start, as was free trade in the 1990s, but as people think they are being hurt by these public policies in the short run or in an economic slowdown, and react at the ballot box, there will come a backlash and entrepreneurial politicians will take advantage of this.

By and large, I guess that carbon pricing has, on the outside, a generation to spread and run before someone declares the problem ‘solved’ or C&T drops off in popularity, or corporate exemptions and carbon taxes get hit in some party’s low-tax platform.

Having said that and sounding like a cynic, my practical suggestion is that we all get on with one or both of these, in order to get as much technological and behavioral benefit as possible from them before the reaction sets in.

There is a lot of material on this subject, though a good starting point that is clear and succinct is Canada’s Ecofiscal Commission: https://ecofiscal.ca*

 Copyright Jim McNiven 2016

*Jim McNiven has no connection with the Ecofiscal group.

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Jim McNiven

James McNiven has a PhD from the University of Michigan. He has written widely on public policy and economic development issues and is the co-author of three books. His most recent research has been about the relationship of demographic changes to Canadian regional economic development. He also has an interest in American business history and continues to teach at Dalhousie on a part-time basis.

 

 

 

 

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Facts and Opinions is a boutique journal of reporting and analysis in words and images, without borders. Independent, non-partisan and employee-owned, F&O is funded by you, our readers. We are ad-free and spam-free, and do not solicit donations from partisan organizations. Real journalism has value. Thank you for your support. Please tell others about us, and follow us on Facebook and Twitter.

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Democracy as Laboratory

Canadian Prime Minister Justin Trudeau delivers his remarks during the signing ceremony on climate change held at the United Nations Headquarters in Manhattan, New York, U.S., April 22, 2016.   REUTERS/Carlo Allegri

Canadian Prime Minister Justin Trudeau delivers his remarks during the signing ceremony on climate change held at the United Nations Headquarters in Manhattan, New York, U.S., April 22, 2016. REUTERS/Carlo Allegri

JIM MCNIVEN: THOUGHTLINES
August, 2016

“It is one of the happy accidents of the federal system that a single, courageous State may, if the citizens choose, serve as a laboratory…” noted  United States Justice Louis Brandeis in a dissenting opinion from a 1932 Supreme Court decision. His statement is as applicable in any other federation, and the experiments going on in Canada with carbon emissions reduction serve to underscore the value of Brandeis’ observation.

The issue of global warming has been a contentious one in Canada for the past 20 years. In part, the Canadian economy is a petro-economy; one only has to note how the C$ sank as the world price of oil sank over the past couple of years to see the truth in this statement. Unlike countries like Venezuela and Saudi Arabia, however, it is not a complete petro-state. While the price of oil dropped from $100 US to $40, the Canadian dollar dropped from par with the US$ to $0.75. Even though the Canadian economy is diversified, the importance of oil exports has made for a political wrangle over carbon emissions over these past two decades, with the governing Conservatives (until late 2015) reluctant to do much in terms of controlling them. The same can be said for coal use.

Meanwhile, Provincial governments had changed their political stripes and Brandeis’ laboratory effect kicked in. The new Liberal federal government has been trying to be environmentally correct in most all things, including doing its part to slow climate change. It wants to develop some kind of national policy in this regard, but it finds that the Provinces occupy all kinds of spots on the carbon emission control map. In large part, this is due to their experimenting while Ottawa ‘slept’.

Instead of a national policy, there are at least 5 different Provincial policies dealing with controlling carbon emissions. Much time, money and effort has been invested in these approaches and the Provinces are loath to give them up. Federal/Provincial meetings since last winter have produced little in the way of coming up with a common approach, something that is so beloved of national politicians and bureaucrats. For one, after a decade of Conservative rule, the Liberals are still finding their way amongst the levers of power; for another, the senior bureaucrats have lost the knack of negotiating with the Provinces after a decade of Tory asymmetric federalism and an attitude of ‘You do your thing and we’ll do ours’ in terms of jurisdiction. And the environment is a shared jurisdictional area.

Let’s review what the ‘lab rats’ have been up to while the cat has been tending to other things, starting in the west and going eastward. In 2008, British Columbia instituted a revenue-neutral carbon tax applied to emitters of greenhouse gases. Revenue-neutral means that the proceeds have been largely remitted to citizens and businesses or used for research and product development.

Recently, Alberta has started to follow the same path as BC, with some additions made in terms of tar sands emissions.

Neighboring Saskatchewan has not gone after emitters so much as having supported technology to capture carbon gases and then store them permanently underground. It has dreams of technological leadership in this regard.

Saskatchewan’s neighbor, Manitoba, looks to its production and export of hydro electricity as being a contributor to greenhouse gas reduction. It may have some attraction to a variant on the policies of the next two easterly Provinces, Ontario and Quebec.

Ontario is following the lead of Quebec, which has pioneered the use of a cap-and-trade system (CT). The CT mechanism consists of setting an emissions limit for the Province’s businesses, then allocating or selling permits to these businesses for the right to emit. If a business can find itself with surplus rights, it can sell them to others; if it over-emits, then it can be fined for doing so. Further, the rights can be traded across borders in a kind of emissions market. Quebec has joined the US ‘Western Alliance’, made up of the States of California, Oregon and Washington, all of whom use the CT system. Ontario has expressed its intention to join in with these partners.

Farther east, the Atlantic Provinces have, with the exception of Nova Scotia, been less interested in these different measures, being small emitters of carbon gases. Nova Scotia’s electricity traditionally has been produced by local or imported coal along with some oil. Over the past half-dozen years, the Province has been aggressive in promoting a COMFIT policy, where communities and other local groups have been allowed to construct wind generators and feed-in the power to the Provincial grid. As well, the private power company serving the Province has been constructing a major underwater hook-up to the Island of Newfoundland where the line will tap into hydro power from Labrador. One should note that this same source will also replace much of Newfoundland’s oil power generation.

With all this experimentation going on, the new interest in carbon pricing by the federal government has been met in the Provinces with a certain wariness. A national program implies a one-size-fit-all program and implies that some or maybe all of the Provinces might lose the investments and experience they have made in their chosen ‘experiments’. It might not work out that way, but, then again, this issue might become the first big constitutional/jurisdictional fight since 1995.

In truth, the key point that could be lost in any negotiation over carbon emission control is whether Approach A is more effective than Approach B, C, D, or E. The real issue is about effectiveness, not the desire for neatness in policymaking. The best thing for a national government in any federation to do is to rigorously measure performance before choosing a carbon tax solution over a technology solution over a cap-and-trade solution, to mention only three possibilities.

Keep the laboratories of democracy open until one of them comes up with the best solution.

 Copyright Jim McNiven 2016

*I must note the contributions made to this piece by my online MPA mature students in their summer 2016 Intergovernmental Affairs course given by Dalhousie University. Their federal/ provincial meeting simulations on this issue really clarified things.

Jim McNiven’s latest book is The Yankee Road: Tracing the Journey of the New England Tribe that Created Modern America. www.theyankeeroad.com

Facts and Opinions is employee-owned and survives on the honour system: please chip in at least .27 per piece or make a sustaining donation. Details here. 

 

~~~

Jim McNiven

James McNiven has a PhD from the University of Michigan. He has written widely on public policy and economic development issues and is the co-author of three books. His most recent research has been about the relationship of demographic changes to Canadian regional economic development. He also has an interest in American business history and continues to teach at Dalhousie on a part-time basis.

 

 

 

 

 

 ~~~

Facts and Opinions is a boutique journal of reporting and analysis in words and images, without borders. Independent, non-partisan and employee-owned, F&O is funded by you, our readers. We are ad-free and spam-free, and do not solicit donations from partisan organizations. Real journalism has value. Thank you for your support. Please tell others about us, and follow us on Facebook and Twitter.

F&O’s CONTENTS page is updated each Saturday. Sign up for emailed announcements of new work on our free FRONTLINES blog; find evidence-based reporting in Reports; commentary, analysis and creative non-fiction in OPINION-FEATURES; and image galleries in PHOTO-ESSAYS. If you value journalism please support F&O, and tell others about us.

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If carbon pricing is so great, why isn’t it working?

Political hurdles and low prices have made carbon pricing a low-impact affair. But there’s still hope it can help limit climate change.
Canada's Oil Sands capital of Fort McMurray, Alberta Photo by Greg Locke, Copyright 2007

Canada’s Oil Sands capital of Fort McMurray, Alberta. F&O Photo by Greg Locke, Copyright 2007

By Peter Fairley 
July, 2016

Earth’s atmosphere has long served as a free dump for carbon dioxide and other greenhouse gases generated by humans. That is changing as policy-makers embrace economists’ advice that the best way to cut greenhouse gas emissions is to charge an atmospheric disposal fee. As a result, governments are increasingly tacking on a price for carbon when fossil fuels are sold and/or consumed, allowing their economies to internalize some of the social and economic costs associated with burning coal, oil and natural gas.

In theory, billing polluters for every ton of carbon they unleash should drive emissions reductions with great economic efficiency, since each player is free to choose its optimal response to the carbon price. Those who can cut affordably do so. Those who can’t, pay the price.

“Carbon pricing is the most effective policy for reducing emissions,” says Christine Lagarde, Managing Director, International Monetary Fund. IMF official portrait

“Carbon pricing is the most effective policy for reducing emissions,” says Christine Lagarde, Managing Director, International Monetary Fund. IMF official portrait

Carbon pricing is the most effective policy for reducing emissions,” says Christine Lagarde, managing director of the Washington, D.C.–based International Monetary Fund, which is a global cheerleader for carbon pricing.

Schemes turning theory into practice applied a carbon price to the equivalent of about 7 billion metric tons (7.7 billion tons) of CO2 emissions worldwide last year, according to the World Bank (another carbon pricing booster). That represents about 12 percent of all anthropogenic greenhouse gas emissions. And the World Bank and IMF have set a goal to extend carbon pricing’s footprint to 25 percent of global emissions by 2020.

What carbon pricing pioneers have yet to prove, however, is that it can deliver on its potential. To date most carbon prices remain low — “virtually valueless” is how Bloomberg put it in a recent review of carbon pricing. That has led even some economists to question whether carbon pricing’s theoretical elegance may be outweighed by practical and political hurdles.

Trade vs. Tax

Although there are many variations on the theme, carbon pricing basically takes two forms.

In most cases, carbon prices are set by national, regional or municipal carbon markets. Governments create these markets by putting an upper limit on total annual greenhouse gas emissions for given sectors of their economies, then issuing tradable allowances” or “credits” for those emissions. More than a dozen carbon markets are now operating, putting a price on 8 percent of global GHG emissions. In the past five years new carbon markets have been launched in California, Quebec, South Korea, and major Chinese industrial centers such as Shanghai, Tianjin and Guangdong.

A simpler option, a carbon tax, currently puts a price on about 4 percent of global GHG emissions. Instead of conjuring up markets to set carbon prices, carbon taxes impose direct levies on industries for every ton of CO2 they release, or on consumers for every ton of CO2 in the fuels they use.

Carbon taxes present a challenge for politicians facing tax-averse publics, but a number of jurisdictions have adopted them, including the U.K., British Columbia and South Africa. Carbon taxes also appear to be gaining some traction in the U.S.: Senator Bernie Sanders made them a central plank in his recent presidential bid, and Washington State voters will get a vote on the first state-level carbon tax ballot initiative in November.

Experts say the two approaches to carbon pricing share more similarities than differences. Unfortunately, their similarities include chronically low prices — prices too low to drive substantial emissions reductions or to inspire low-carbon investments. Most carbon markets and taxes are well below US$15 per metric ton (1.1 ton), whereas members of the International Emissions Trading Association recently estimated that €40 (US$44) per metric ton (1.1 ton) pricing was required to achieve the goals of the Paris Agreement on Climate Change.

Carbon pricing is a mantra for experts, but none of these people needs to get reelected says Mark Jaccard. Photo: Simon Fraser University

Carbon pricing is the mantra for many experts, but none of them needs to get reelected, says economist Mark Jaccard. Photo: Simon Fraser University.

The problem, Jaccard says, is that carbon pricing is as politically inexpedient as it is economically efficient.“It is politically difficult to get carbon prices to levels that have an effect,” says Mark Jaccard, an energy economist at British Columbia’s Simon Fraser University. The problem, Jaccard says, is that carbon pricing is as politically inexpedient as it is economically efficient: While carbon pricing has become a mantra for economists, environmentalists, academics, celebrities, media pundits and even corporate heads, none of these people needs to get reelected,” he notes.

Tough Trading

Carbon markets have been a work in progress ever since the European Union launched the first one in 2005 to comply with the Kyoto Protocol, under which the EU pledged to cut emissions to 8 percent below 1990 levels by 2012. The EU’s Emissions Trading System is vast and complex, covering nearly half of the EU’s greenhouse gas emissions, including those from over 11,000 cement plants, power stations, refineries and other polluting installations as well as CO2 from air travel within Europe.

The ETS releases 1.74 percent fewer allowances for industrial emissions every year, so emissions should be 21 percent lower in 2020 than they were in 2005. In practice, emissions are dropping, but not because of the market, which suffers from a chronic glut of allowances.

Dallas Burtraw, a senior fellow at Resources for the Future, a Washington, D.C.–based think tank, says the ETS allowed polluters to make generous use of carbon offsets — allowances generated by emissions reduction projects in developing countries. At the same time, economic recession gripping Europe since 2008 and European regulations promoting renewable energy and efficiency both cut fossil fuel consumption, reducing demand for ETS allowances.

The result is rock-bottom pricing for carbon. In late June 2016, European allowances were trading at €4.50 (US$5.00) per metric ton (1.1 ton), less than one-third their initial price in 2005. “The ETS price is below expectations, and below the level that could spark transformational innovation and investments,” says Burtraw.

Some newer markets have sought to avoid Europe’s troubles, with qualified success. Academic researchers concur. A 2013 research survey by the U.K.-based Grantham Research Institute on Climate Change and the Environment, for example, estimated that the ETS was having a “small but non-trivial impact” on European carbon emissions. It found no evidence that carbon pricing was driving investments in new equipment or innovation needed to meet the EU’s long-term emissions targets.

Some newer markets have sought to avoid Europe’s troubles, with qualified success. One launched in 2012 by California (and pooled with Québec’s carbon market in 2014) fights oversupply by allocating most allowances via auctions with a floor price that rises every year, instead of handing them out for free.

Despite this strategy, the California/Québec carbon price also crashed after a few years. It currently sits near the latest auction floor price of US$12.73 — a price level that puts little downward pressure on emissions. Jaccard argues that policies such as California’s renewable portfolio standard, which has fueled aggressive deployment of utility-scale solar and wind farms, are driving California’s emissions reductions. “The cap is not actually forcing down emissions. Regulations are,” he says.

The market, meanwhile, is proving a wild ride for public finances, despite its floor price. Most allowances did not sell at California’s May 2016 auction, thanks at least in part to a legal challenge by manufacturers that spooked traders’ confidence in the market. The state put 43 million allowances to auction and sold just 785,000, all at the floor price. The results were a rude surprise for state agencies promised auction proceeds to fund climate and energy programs. The agency designing a high-speed rail network for California, for example, expected at least a US$150 million infusion from last month’s quarterly auction and instead netted just US$2.5 million.

The Emissions Trading System price is below the level that could spark transformational innovation and investment,”says Dallas Burtraw. Official portrait, Resources for the Future

The Emissions Trading System price is below the level that could spark transformational innovation and investment,”says Dallas Burtraw. Official portrait, Resources for the Future

China is preparing to start a national carbon market next year that will eclipse the EU’s as the world’s largest, covering roughly 4 billion metric tons (4.4 billion tons) of CO2. Chinese President Xi Jinping announced the 2017 carbon market launch last fall to reinforce the country’s promise under the Paris Agreement for its CO2 emissions to peak by 2030.

There is no evidence yet that China’s market will produce stronger carbon prices than its predecessors. While the rules are still being decided, experts expect that it will launch with free distribution of allowances. “There will be mostly free allocation, but auctioning — presumably with a reserve price — will play an increasingly important role over time,” predicts Clayton Munnings, a colleague of Burtraw’s and a China expert at Resources for the Future.

Munnings led a study of China’s regional pilot carbon markets (to be published soon in Energy Policy) that identified enforcement and transparency concerns that could also undermine the national market.

“Credibility is important to cap-and-trade markets,” he says. “Firms must believe that allowances are scarce if they are to fully participate in trading.”

Taxing Strategy

Carbon tax advocates favor forgoing the vagaries of carbon markets altogether. Rather, they recommend governments tax greenhouse gas production at a rate that will create sufficient incentive to significantly reduce emissions while generating steady revenues that can be put to good use.

The quintessential example is British Columbia’s carbon tax, which adds C$30 (US$23) per metric ton to fossil fuels sold and combusted in the province (which account for over 70 percent of its total greenhouse gas emissions). It is generally accepted that the tax is reducing emissions in British Columbia without harming the provincial economy.

Yoram Bauman, the Seattle-based economist behind Washington State’s ballot Initiative 732, says he modeled the carbon tax ballot measure after British Columbia’s. Bauman says he fell in love with the “simplicity” of environmental taxation as an undergraduate at Reed College in Portland, and found the province’s carbon tax elegant enough to capture in haiku:

Fossil CO2  /  30 dollars for each ton  /  Revenue neutral

British Columbia’s policy returns revenues from the carbon tax to taxpayers in the form of cuts to existing taxes — and that’s the plan for Initiative 732 as well. Both also offer tax benefits for low-income families, who are disproportionately hurt by rising energy costs.

In British Columbia, this revenue neutral formula drove a rapid reduction in CO2 emissions at little cost to the economy during its first four years, with per capita use of fossil fuel dropping up to 19 percent. Several studies suggest that British Columbia’s economy may have actually accelerated as a result thanks to the stimulative effect of cutting income and business taxes. A 2015 working paper from the University of Calgary, for example, estimates that employment in the province grew 2 percent between 2007 and 2013 due to the carbon tax.

That double dividend is attracting politically diverse interest in the U.S. Former Cato Institute official Jerry Taylor, who now runs the libertarian Niskanen Center, issued a report last year titled The Conservative Case for a Carbon Tax. More recently, Sen. Bernie Sanders has been trying to convince the Democratic Party to endorse carbon taxes.

Republican leaders in Congress who oppose climate action passed a nonbinding resolution in June stating that carbon taxes “would be detrimental to American families and businesses.” But Aparna Mathur, a resident scholar at the American Enterprise Institute, bemoaned the Republican’s resolution this month, telling Politico that “instead of relying on dozens of federal and state regulations that themselves are costly, a carbon tax would be transparent and cost-effective.”

Yet the political hurdles facing carbon taxes cannot be overstated. Representatives of U.S. presidential candidate Hillary Clinton opposed including Sanders’ carbon tax plank in the Democratic Party’s official 2016 platform. And even supporters of Initiative 732 say it faces an uphill battle.

“We have a very tax-sensitive electorate in Washington,” acknowledges Joe Fitzgibbon, chair of the Washington State legislature’s environment committee. Others have expressed concerns that the initiative could leave the state with less revenue. And environmental groups are rallying instead behind cap and trade, with revenues to be redirected to environmental programs (including ones protecting the state’s forestry jobs) rather than tax cuts.

Even British Columbia’s much-lauded carbon tax is unpopular at home and losing ground. Annual increases in the tax were frozen in 2012, when Premier Gordon Campbell, who launched the tax, left office. And the province’s greenhouse gas emissions are on the rise again. Seven members of current Premier Christy Clark’s Climate Leadership Team recently urged her in an open letter and op-ed to strengthen the tax. The advisors have recommended C$10 (US$23) per metric ton (1.1 ton) annual increases from 2018 to provide “enough incentive to reduce carbon pollution.”

The Regulation Option

Jaccard, who advised Campbell on the original tax plan, claims to have lost faith in the political viability of carbon pricing. He is providing advice to Canada’s federal government, and suggesting Prime Minister Justin Trudeau focus on regulations that have direct and proven impact.

Modeling by Jaccard’s research group suggests that Canada would need carbon prices rising to C$160 (US$124) per metric ton (1.1 tons) in 2030 to meet its pledges under the Paris agreement. Instead of risking political careers with such a proposal, he advises politicians to strengthen carbon-cutting regulations. For example, he suggests mandating a phase-out of coal-fired power plants and requiring automakers to sell mostly electric vehicles by 2030.

“Difficult as this might be, it would be far less difficult than defending a rapidly rising carbon tax that attracts hostile media attention with each increase,” Jaccard wrote recently in the Canadian online magazine Policy Options.

[R]esearch indicates that carbon pricing policy is consistently undermined by lobbying from commercial interests. Steffen Böhm, an expert in carbon markets at the University of Exeter Business School in the U.K., has come to the same conclusion. He says that his research indicates that carbon pricing policy is consistently undermined by lobbying from commercial interests.

“What we need is policy-makers taking responsibility to put legislation in place to phase out fossil fuels,” says Böhm.

Others expect carbon markets to deliver in the end, with prices rising as lower-cost emissions reductions are exploited and declining carbon caps force increasingly tougher action.

Burtraw at Resources for the Future offers an alternate and rather unorthodox possibility: Low carbon prices may reflect factors like innovation that are impossible to fully anticipate. He notes the plummeting prices for solar and wind power and energy efficiency measures. Whereas the fossil fuels that have dominated economies for centuries tend to rise in cost as they are depleted, renewables are dropping fast and they could keep on dropping. As a result, climate mitigation could turn out to be less expensive than economists have assumed.

“My view is that a carbon price is imperative,” says Burtraw, “but in the end it will not have to be high.”

Creative Commons, republished from Ensia magazine
View Ensia homepage

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