1 Where are we? What have we learned? Where should we go? What next? “Economic perspectives” Nancy Olewiler

2 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

3 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”

4 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?

5 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)

6 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

7 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

8 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

9 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

10 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

11 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

12 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…..

13 Climate change is already here Photos from Don Haley & Natural Resources Canada