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The pan-Canadian approach to carbon pricing, announced in October 2016, ensures that carbon pricing applies throughout Canada in 2018, with increasing stringency over time to reduce emissions. Canadian provinces and territories have the flexibility to either implement an explicit price-based system—with a minimum price of CAN $10 per tonne of carbon dioxide equivalent in 2018, increasing to CAN $50 per tonne by 2022—or an equivalently scaled emissions trading system. This paper discusses the rationale for, and design of, the price floor requirement; its (provincial-level) environmental, fiscal, and economic welfare impacts; monitoring issues; and (national-level) incidence. The general conclusion is that the welfare costs and implementation issues are manageable, and pricing provides significant new revenues. A challenge is that the floor price by itself appears well short of what will be needed by 2030 for Canada’s Paris Agreement pledge.
The pan-Canadian approach to carbon pricing, announced in October 2016, ensures that carbon pricing applies throughout Canada in 2018, with increasing stringency over time to reduce emissions. Canadian provinces and territories have the flexibility to either implement an explicit price-based system—with a minimum price of CAN $10 per tonne of carbon dioxide equivalent in 2018, increasing to CAN $50 per tonne by 2022—or an equivalently scaled emissions trading system. This paper discusses the rationale for, and design of, the price floor requirement; its (provincial-level) environmental, fiscal, and economic welfare impacts; monitoring issues; and (national-level) incidence. The general conclusion is that the welfare costs and implementation issues are manageable, and pricing provides significant new revenues. A challenge is that the floor price by itself appears well short of what will be needed by 2030 for Canada’s Paris Agreement pledge.
Shows readers how we can all help solve the climate crisis by focusing on a few key, achievable actions.
Why the traditional “pledge and review” climate agreements have failed, and how carbon pricing, based on trust and reciprocity, could succeed. After twenty-five years of failure, climate negotiations continue to use a “pledge and review” approach: countries pledge (almost anything), subject to (unenforced) review. This approach ignores everything we know about human cooperation. In this book, leading economists describe an alternate model for climate agreements, drawing on the work of the late Nobel laureate Elinor Ostrom and others. They show that a “common commitment” scheme is more effective than an “individual commitment” scheme; the latter depends on altruism while the former involves reciprocity (“we will if you will”). The contributors propose that global carbon pricing is the best candidate for a reciprocal common commitment in climate negotiations. Each country would commit to placing charges on carbon emissions sufficient to match an agreed global price formula. The contributors show that carbon pricing would facilitate negotiations and enforcement, improve efficiency and flexibility, and make other climate policies more effective. Additionally, they analyze the failings of the 2015 Paris climate conference. Contributors Richard N. Cooper, Peter Cramton, Ottmar Edenhofer, Christian Gollier, Éloi Laurent, David JC MacKay, William Nordhaus, Axel Ockenfels, Joseph E. Stiglitz, Steven Stoft, Jean Tirole, Martin L. Weitzman
This Climate Note discusses the rationale, design, and impacts of border carbon adjustments (BCAs), charges on embodied carbon in imports potentially matched by rebates for embodied carbon in exports. Large disparities in carbon pricing between countries is raising concerns about competitiveness and emissions leakage, and BCAs are a potentially effective instrument for addressing such concerns. Design details are critical, however. For example, limiting coverage of the BCA to energy-intensive, trade-exposed industries facilitates administration, and initially benchmarking BCAs on domestic emissions intensities would help ease the transition for emissions-intensive trading partners. It is also important to consider how to apply BCAs across countries with different approaches to emissions mitigation. BCAs are challenging because they pose legal risks and may be at odds with the differentiated responsibilities of developing countries. Furthermore, BCAs provide only modest incentives for other large emitting countries to scale carbon pricing—an international carbon price floor would be far more effective in this regard.
Addressing the poverty and distributional impacts of carbon pricing reforms is critical for the success of ambitious actions in the fight against climate change. This paper uses a simple framework to systematically review the channels through which carbon pricing can potentially affect poverty and inequality. It finds that the channels differ in important ways along several dimensions. The paper also identifies several key gaps in the current literature and discusses some considerations on how policy designs could take into account the attributes of the channels in mitigating the impacts of carbon pricing reforms on households.
With the effects of climate change already upon us, the need to cut global greenhouse gas emissions is nothing less than urgent. It’s a daunting challenge, but the technologies and strategies to meet it exist today. A small set of energy policies, designed and implemented well, can put us on the path to a low carbon future. Energy systems are large and complex, so energy policy must be focused and cost-effective. One-size-fits-all approaches simply won’t get the job done. Policymakers need a clear, comprehensive resource that outlines the energy policies that will have the biggest impact on our climate future, and describes how to design these policies well. Designing Climate Solutions: A Policy Guide for Low-Carbon Energy is the first such guide, bringing together the latest research and analysis around low carbon energy solutions. Written by Hal Harvey, CEO of the policy firm Energy Innovation, with Robbie Orvis and Jeffrey Rissman of Energy Innovation, Designing Climate Solutions is an accessible resource on lowering carbon emissions for policymakers, activists, philanthropists, and others in the climate and energy community. In Part I, the authors deliver a roadmap for understanding which countries, sectors, and sources produce the greatest amount of greenhouse gas emissions, and give readers the tools to select and design efficient policies for each of these sectors. In Part II, they break down each type of policy, from renewable portfolio standards to carbon pricing, offering key design principles and case studies where each policy has been implemented successfully. We don’t need to wait for new technologies or strategies to create a low carbon future—and we can’t afford to. Designing Climate Solutions gives professionals the tools they need to select, design, and implement the policies that can put us on the path to a livable climate future.
Following submission of greenhouse gas (GHG) mitigation commitments or pledges (by 190 countries) for the 2015 Paris Agreement, policymakers are considering specific actions for their implementation. To help guide policy, it is helpful to have a quantitative framework for understanding: i) the main impacts (on GHGs, fiscal balances, the domestic environment, economic welfare, and distributional incidence) of emissions pricing; ii) trade-offs between pricing and other (commonly used) mitigation instruments; and iii) why/to what extent needed policies and their impacts differ across countries. This paper provides an illustrative sense of this information for G20 member countries (which account for about 80 percent of global emissions) under plausible (though inevitably uncertain) projections for future fuel use and price responsiveness. Quantitative results underscore the generally strong case for (comprehensive) pricing over other instruments, its small net costs or often net benefits (when domestic environmental gains are considered), but also the potentially wide dispersion (and hence inefficiency) in emissions prices implied by countries’ mitigation commitments.