Posted Thursday November 28, 2019


Hidden climate policies have higher costs than carbon pricing says Ecofiscal Commission

In its final report, the Ecofiscal Commission takes a closer look at Canada’s options for achieving its 2030 greenhouse gas emissions target. To reduce costs, carbon pricing should play a central role. To achieve our GHG target, carbon prices should continue to rise. Other policy approaches, though less visible, are more costly for Canadians.

Canada’s Ecofiscal Commission released a new report, Bridging the Gap: Real Options for Meeting Canada’s 2030 GHG Target.

Canada’s leaders have committed to meeting our GHG reduction target. How can we best do so? Ecofiscal’s final report compares Canada’s options. We have real options, but it’s time to focus on those that can actually work for both the economy and the environment.

Our analysis shows that carbon pricing tops the list. It delivers the lowest cost emissions reductions. A steadily rising carbon price can achieve Canada’s target and maintain strong economic growth. It can also generate revenue that can be returned to Canadians to maintain affordability.

Carbon pricing opponents falsely argue there are cheaper or easier ways to achieve our targets. But we cannot rely on technology alone to tackle the problem. To spur the clean innovation we need, we require more stringent policy.

Not all policies are created equal. While exemptions and subsidies have illusory appeal, trying to shelter consumers from costs will actually cost them more. Our modelling shows that carbon pricing will grow Canadian incomes on average by $3,300 more in 2030 relative to a policy approach that relies on a mix of subsidies and industry-only regulations.

Yet carbon pricing isn’t the only real option. A package of well-designed, flexible regulations—with policies similar to the Clean Fuel Standard—can perform almost as well as carbon pricing. We can also combine flexible regulations and carbon pricing. That said, these policies can be challenging to implement well, and easy to get wrong. They also don’t generate revenue that can be returned to Canadians.

No matter what policy tool—or combination of tools—we use to achieve Canada’s 2030 target, policies will have to be significantly more stringent than they are today. The regulatory approaches we model, for example, require halving the emissions intensity of industrial production by 2030. Aggressive new green subsidies would require increasing either taxes or public debt to pay for them. Relying on carbon pricing to bridge the gap requires steadily increasing the carbon price by around $20/tonne every year from 2023 until 2030. That represents an increase in the costs of gasoline of about 40 cents per litre relative to today. At the same time, higher carbon prices create the opportunity for larger rebates to Canadians: in our analysis, rebates per person in 2030 are around $800 in Ontario, $2,250 in Alberta and $4,100 in Saskatchewan.

It’s tempting to think that alternatives to carbon pricing will cost us less. But their costs are hidden and actually cost us more. As stringency rises over time, the cost-effectiveness of policy becomes more and more important. Pursuing less visible and yet more expensive policies (such as prescriptive regulations) will have significant impacts on our economy—with real implications for jobs, standard of living, and overall economic progress.

We can bridge the gap to 2030 by building on policies that we already have in place and the emissions reductions we have already achieved. If we want to minimize the costs of doing so, carbon pricing should play a central role.

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ISSN 0824-45
Copyright, 2019

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