Climate Change – Efficient Policy Measures

Theme 1: Climate change – efficient policy measures Background: As part of its contribution to meeting the terms of the Paris Agreement on Climate Change, Canada has committed to reducing its greenhouse gas emissions by 30 percent below its 2005 level by 2030. In order to achieve this goal, the Canadian government has implemented a national carbon pricing regime, consisting of a federally implemented carbon tax in some provinces and provincially administered systems in others. These taxes / prices will feed through into increases in the sale prices of affected commodities such as petroleum products, natural gas, and coal. At the same time, Burniaux and Château (2014) discuss a list of 37 countries, not including Canada, which directly subsidize the consumption of fossil fuels (based on 2008 data). (Coady et al. (2019) updates the state of play regarding subsidization of fossil fuels with more recent data.) You should assume that you are the Deputy Minister of the Environment for the Canadian government, and your job is to provide advice to the Minister of the Environment. The Minister recently read Burniaux and Château (2014) and she is uncertain what lessons to take from it for Canadian policy. In order to clarify the issues, she has asked you to write a briefing note responding to the following question. Questions: Is it economically efficient for Canada to follow through on its pricing regime at the same time as other countries continue to subsidize the consumption of fossil fuels? What would a globally efficient policy look like? What are the obstacles to such a policy? Can Canada do anything to help overcome these obstacles? In responding to these questions, please make reference to the sources on the reading list. Keywords: fossil fuel subsidies 2 Theme 2: Climate change – efficient policy measures Background: In July 2018, the newly elected Conservative government of Ontario announced it would eliminate the cap-and-trade system of tradable permits put in place by the previous Liberal government to control the emissions of greenhouse gas emissions (GHGs). In a press release, the new premier, Doug Ford, promised that the elimination of this program would “result in lower prices at the gas pump, on your home heating bills and on virtually every other product that you buy.” Premier Ford insisted that “cap-and-trade and carbon tax schemes are no more than government cash grabs that do nothing for the environment…”. Questions : Do you agree with the decision of the Ontario government in 2018 to end the tradable permit system in the province? Explain your reasoning by making reference to sources you have read in the course. Keywords: tradable permit system Theme 3: Carbon tax – distributional effects Background: As part of its contribution to meeting the terms of the 2015 Paris Agreement on Climate Change, Canada has committed to reducing its greenhouse gas emissions by 30 percent below its 2005 level by 2030. In order to achieve this goal, the Canadian government implemented a national carbon pricing regime in 2019, consisting of a federally implemented carbon tax in some provinces and provincially administered systems in others. In response, during the federal election in the fall of 2019, the Conservative Party issued a press release claiming that the carbon tax “would hit Canadians hard, costing them hundreds of dollars per year”. Questions: Imagine you were an economic consultant working in 2019, and you were hired by a national citizens association to help them better understand the issues regarding the carbon tax. Your contract required you to prepare a written analysis evaluating the positions of the Canadian government and the Conservative opposition from an economic perspective. Which position was more credible? Justify your conclusion by referring to sources you have read in ECO 4136 (sources on the reading list). Keywords: lump-sum transfers 3 Theme 4: Competitiveness concerns with incentive-based mechanisms Background: The country of Indecisivia is considering whether to implement an incentive-based mechanism (IBM) to control greenhouse gas emissions (GHGs). But there is concern that an IBM will create a large cost burden for domestic companies which must compete with goods from countries that are not implementing policies to control GHGs. You are the Deputy Minister of the Environment of the country. Your job is to write a briefing note to educate and advise the Minister of the Environment, as she prepares to make a presentation to the cabinet next week. Questions: If an IBM is implemented, will it necessarily result in a large amount of carbon leakage, as consumers substitute less expensive imported goods for more expensive domestically produced goods? What are the options for Indecisivia? In responding to these questions, make reference to the sources on the reading list for the course. Keywords: carbon leakage