1. 6 Carbon Pricing Myths — and How to Overcome Them
Dale Beugin, Executive Director, Canada’s Ecofiscal Commission
October 14, 2018

2. Myth #1: Carbon pricing doesn’t work

3. There’s a lot of evidence that prices
affect behaviour

4. Carbon pricing has worked in British Columbia
Had the BC Carbon tax NOT been implemented:
GHG emissions would be 5-15% higher (Murray & Rivers, 2015)
Per-capita gasoline consumption would be 7-17% higher (Rivers & Schaufele, 2012)
Vehicles would be 4% less efficient on average (Antweiler & Gulati, 2016)

5. Carbon pricing has worked in
Sweden

6. The signal gets stronger over time
Changes in behaviour
Changes in investment
Changes in innovation
Short-term Medium-term Long-term

7. Modelling suggests carbon pricing will work in Canada

8. Myth #2: Carbon pricing costs too much

9. Command-and-control regulations
Carbon pricing costs less than other policy options
Carbon Pricing
Command-and-control regulations
Subsidies
Flexible?
Yes
Sometimes No
Technology-neutral?
Generate revenue?
Drive clean innovation?
Avoid free-ridership problems?

10. Market-based instruments have a history of success
Eastern U.S. air pollutant (NOx) trading:
Deep reductions at 40-58% lower costs than command- and-control regulations
Sources: Farrell (2000); Krupnick et al. (2005); Johnson and Pekelny (1996).

11. Is 3.7% of GDP a big difference?
One practical way to address this problem is to move forward with provincial policies. A few main reasons 

12. A $100/tonne carbon price will have small economic costs

13. Myth #3: Carbon pricing will undermine our competitiveness

14. Competitiveness pressures are a legitimate concern
Trump
Leakage

15. But: only some of the economy is vulnerable

16. Output-based allocations “Output-based carbon pricing”
Policy design can address competitiveness concerns
Carbon price
Incentives to reduce emissions
Incentives for low-carbon innovation +
Incentives to keep production and investment inside province
Ideally: Targeted, Temporary, and Transparent
Output-based allocations =
“Output-based carbon pricing”
Incentives to reduce GHG emissions by improving performance, not by reducing production 16

17. Alberta’s carbon price:
OBA “rebates” to large final emitters

18. Myth #4: Carbon pricing is regressive

19. Fair questions about fairness
Carbon costs as a share of income at $30 / tonne
(Before revenue recycling, free allocations, behavioural & technological change)
Alberta
Nova Scotia
Manitoba
Ontario

20. Recycling revenue to households can solve this problem…and fully offset carbon costs for households
Bottom 20%
Bottom 40%

21. Alberta’s carbon price:
cash rebates to ~ 2/3 of households

22. Myth #5: Revenue recycling undermines the price signal

23. Emitters can avoid the carbon price AND benefit from revenue recycling
GHGs before policy
GHGs
GHGs after policy
Avoided GHGs = savings $
Carbon Dividend
Family #1
GHGs before policy
GHGs
GHGs after policy $
Family #2
Carbon Dividend

24. Myth #6: Carbon pricing is a “job-killer”

25. Evidence suggests carbon pricing doesn’t much affect net jobs
Over time, more jobs in low-carbon industries
Offsets job losses in carbon-intensive industries
US modelling (Hafstead et al., 2018):
$40 carbon tax with lump-sum rebates reduces total jobs by 0.3%
Job losses far smaller if revenues used to cut labour taxes
BC modelling (Yamazaki, 2017):
Average 0.7% annual increase in employment from

26. To conclude…

27. Carbon pricing works. Incentives matter
Carbon pricing is lowest-cost approach to reducing GHG emissions
Carbon pricing can—and should—be designed to protect competitiveness
Carbon pricing can—and should—be designed to be fair
Smart revenue recycling complements carbon pricing
Carbon pricing can support a growing, prosperous economy

28. Dale Beugin | @dalebeugin| www.ecofiscal.ca
Thank you
Dale Beugin