On January 25, 2011, the National Round Table on the Environment and the Economy released a report (Climate Prosperity- Parallel Paths: Canada- U.S. Climate Policy Choices) on the economic and environmental implications of Canada harmonizing its climate change policies and laws with the US. The report’s conclusion: Given the uncertainty about US commitment and direction on climate change, the difference between the Canadian and US economies and emissions profiles and keeping in mind the need to stay competitive, Canada should begin to implement emissions rules now and harmonize policies with the US in the future. Here are highlights from the report.
Four Key Areas
The report includes conclusions regarding Canada-US harmonization on climate policy in four key areas:
Emissions profiles. Harmonization on carbon targets will have different implications for Canada compared with harmonization on carbon price due to Canada’s distinctive emissions profile, especially its projected oil sands production and its energy-economy structure. Harmonizing greenhouse gas (GHG) targets will lead to higher carbon prices in Canada and decrease Canada’s competitiveness, while harmonizing carbon prices would increase Canadian competitiveness, but result in fewer emission reductions and would cause Canada to fall short of its stated 2020 target.
Competitiveness. Targeted policy measures would reduce the impact of competitiveness concerns on those sectors representing the 10% of Canada’s economy that’s considered to be emissions-intensive and trade-exposed.
Trade measures. US legislative proposals to account for carbon content in imported goods and products, as well as low-carbon fuel standards can be managed if Canada adopts equally stringent policies.
Costs. The costs imposed by Canada’s own climate policies are likely to have the most impact on Canadian industry and thus will be present regardless of when Canada implements its climate policy actions. But delays in implementing policies will increase these costs in the long-run.
Based on these conclusions, the report recommends that Canada take a transitional approach by immediately implementing an economy-wide cap-and-trade system with carbon prices to be contingent on US prices and with harmonization remaining an option for the future. This transitional policy should have the following elements:
- Contingent carbon pricing to establish a price collar that limits the Canadian carbon price to be no more than $30/tonne CO2e higher than the price in the US as a compromise between harmonizing with US targets and US carbon prices;
- National cap-and-trade system with auctioning of permits and revenue recycling back to carbon emitters to minimize impact on industry sectors and address regional balance concerns. In the long term, an integrated North American carbon market can be established if the US implements its own cap-and-trade system that it’s willing to link with a Canadian system;
- Limited international permits and domestic offsets to keep domestic carbon prices lower for Canadian firms to maintain competitiveness and further harmonizing with US policy direction, while still ensuring that the bulk of compliance would be achieved through domestic abatement or investment in low-carbon technologies; and
- A technology fund as part of contingent pricing, where revenue from additional emissions permits would be deposited into a national low-carbon technology fund to stimulate investment in needed emission reduction technologies.