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Where are we? Where are we? What have we learned? What have we learned?

Where should we go?Where should we go?What next?What next?

“Economic perspectives”“Economic perspectives”Nancy OlewilerNancy Olewiler

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Where are we?Where are we?

►History matters: we’ve seen the History matters: we’ve seen the backstory, the numbers and gaps between backstory, the numbers and gaps between reality and goals & none of it is prettyreality and goals & none of it is pretty

►Perpetuating the ‘Canadian way’ – Perpetuating the ‘Canadian way’ – fragmentation, pretense of action through fragmentation, pretense of action through voluntary/weak regs, scare tactics: threats voluntary/weak regs, scare tactics: threats of ‘breaking up the country’, creating of ‘breaking up the country’, creating recessions, leading to public confusion recessions, leading to public confusion about the relative merits of policies about the relative merits of policies

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Reasons given to do nothingReasons given to do nothing

► ““I’ll deal with climate I’ll deal with climate change when I see it change when I see it happening – isn’t it happening – isn’t it good for Canada to good for Canada to be warmer!”be warmer!”

► ““Why should I pay Why should I pay when our emissions when our emissions are such as small are such as small share of the share of the world’s?”world’s?”

► ““I’ll wait until I see I’ll wait until I see other countries other countries taking real action on taking real action on climate change”climate change”

► ““We don’t have time We don’t have time or money or or money or information to deal information to deal with climate change with climate change right now, it will be right now, it will be too costly for the too costly for the economy”economy”

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Where are we?Where are we?

►But, for the first time in Canada, we have But, for the first time in Canada, we have had discussion of pricing policies rather had discussion of pricing policies rather than the pretense that voluntary than the pretense that voluntary initiatives and incentives alone will reach initiatives and incentives alone will reach goals. goals.

►Will we be able to continue or enhance Will we be able to continue or enhance the discussion & support brave leaders, or the discussion & support brave leaders, or

►Do we have to go ‘underground’ & Do we have to go ‘underground’ & disguise pricing policies?disguise pricing policies?

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What have we learned: some What have we learned: some economic fundamentalseconomic fundamentals

► Properly done, there are many benefits from Properly done, there are many benefits from using pricing policies (cost effective, revenues), using pricing policies (cost effective, revenues), but…but…

► Uneven distribution of costs (AB and SK)Uneven distribution of costs (AB and SK)► Amorphous benefits (with widely different Amorphous benefits (with widely different

regional perception – pine beetles bad, losing regional perception – pine beetles bad, losing manufacturing jobs due to climate policy = bad)manufacturing jobs due to climate policy = bad)

► Free riders: people are worried about Free riders: people are worried about destroying the world but no one wants to pay destroying the world but no one wants to pay and we’ll vote against anyone who tries to and we’ll vote against anyone who tries to make us pay (or tells the truth)make us pay (or tells the truth)

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What have we learned: more What have we learned: more economicseconomics

► It will cost a lot to significantly reduce It will cost a lot to significantly reduce emissions and we need technological emissions and we need technological changechange

►Any policy that prices carbon in some Any policy that prices carbon in some way will have an unequal distribution way will have an unequal distribution across the country, hence the fiscal across the country, hence the fiscal federalism issues need to be federalism issues need to be addressed and with luck, can beaddressed and with luck, can be

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What have we learned: some What have we learned: some viewpoints about policiesviewpoints about policies

► Corporate sector: give us a predictable policy Corporate sector: give us a predictable policy that we can plan for, price certaintythat we can plan for, price certainty

► Financial sector: looking for a new ‘market Financial sector: looking for a new ‘market opportunity’ opportunity’ C&T C&T

► With C&T, design is complex and while much With C&T, design is complex and while much can go wrong, these markets can work and can go wrong, these markets can work and may be one of the ways to fool the public and may be one of the ways to fool the public and maybe we can even make it into a taxmaybe we can even make it into a tax

► Or maybe we should look more at things like Or maybe we should look more at things like RPSs & PBFs because public’s preferences are RPSs & PBFs because public’s preferences are inversely related to experts. Don’t want inversely related to experts. Don’t want prices, want regs that may lead to very costly prices, want regs that may lead to very costly

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What have we learned: law & What have we learned: law & politicspolitics

► Lawyers have better slides than economists, Lawyers have better slides than economists, except Rick Hyndmanexcept Rick Hyndman

► Cooperation may not be necessary but if Cooperation may not be necessary but if doesn’t happen, will probably cost a lot doesn’t happen, will probably cost a lot more to reach targetsmore to reach targets

► Nonetheless, we will probably continue to Nonetheless, we will probably continue to have a mix of policies across country at have a mix of policies across country at least in the short term and this may be ok or least in the short term and this may be ok or really bad, but is the alternative of a really bad, but is the alternative of a national program worse?national program worse?

► We might be forced to act by international We might be forced to act by international pressures and potential trade actionspressures and potential trade actions

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Where should we go: general Where should we go: general issuesissues

►All the carbon models say the longer All the carbon models say the longer we wait, the more costly any policywe wait, the more costly any policy

►Design a system that minimizes Design a system that minimizes chance of legal challenges or chance of legal challenges or undesirable legal decisionsundesirable legal decisions

►Design a system that is cost effective Design a system that is cost effective & reduces emissions (it actually works)& reduces emissions (it actually works)

►Fragmented system will likely be more Fragmented system will likely be more economically costly than nationaleconomically costly than national

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Where should we go?Where should we go?

► Some form of broad pricing (however Some form of broad pricing (however disguised)disguised) Start low and rise over timeStart low and rise over time

► Some fed/prov design considerations:Some fed/prov design considerations: National floors with provincial options for greater National floors with provincial options for greater

stringencystringency Common price across the country or NA – means Common price across the country or NA – means

national C&T or “tax” national C&T or “tax” Sharing the revenues: number of options discussedSharing the revenues: number of options discussed

► One caution: Canada is not the USOne caution: Canada is not the US

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Where should we go: Where should we go: options?options?

►Carbon tax versus Cap & Trade (C&T) Carbon tax versus Cap & Trade (C&T) ►Many examples now of both in operation Many examples now of both in operation ►Is tax really dead?Is tax really dead?►Implementation: time to develop policy + fed/prov Implementation: time to develop policy + fed/prov

allocation, eg sharing of ‘price’ – feds give up 50%allocation, eg sharing of ‘price’ – feds give up 50%

►Carbon-added Tax Tariff (CATT) Carbon-added Tax Tariff (CATT) consumption taxconsumption tax Measurement challenges, but less regional Measurement challenges, but less regional

messmess

►Other regs as complements or substitutesOther regs as complements or substitutes

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Where next?Where next?

►We need to expand the dialogue – this We need to expand the dialogue – this better be the beginning of the better be the beginning of the discussion, not the end; there are discussion, not the end; there are many supporters for pricing carbon, many supporters for pricing carbon, the glass is still half full and the clock the glass is still half full and the clock is ticking….. is ticking…..

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Climate change is already hereClimate change is already here

Photos from Don Haley & Natural Resources Canada