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Policy
| 09/28/16

Study: Carbon pricing not the only solution

TCE

Pricing carbon at the level needed to avoid dangerous climate change is politically difficult if not impossible, but this need not be a problem if governments adopt a suite of regulations that will achieve the same result, according to a new Canadian economic modelling study.

A range of international bodies has assessed the necessary carbon price to keep the planet below 2°C of warming above pre-industrial temperatures, and their conclusions can be eye-watering. The Intergovernmental Panel on Climate Change put the price at US$50-$100 per tonne of carbon dioxide (CO2) between 2010 and 2030. The International Energy Agency thinks it should be $95-$100 by 2030. And Canada’s National Roundtable on the Economy and the Environment had put the figure at CAN$50 by 2015, climbing to $100 by 2020 and more than $300 by 2050.

A fresh paper out this week co-authored by Simon Fraser University environmental economist Mark Jaccard, using an economic model developed in part with funding from PICS, finds that just to achieve the federal government’s current climate pledge of a 30 percent reduction on 2005 levels by 2030 would require an immediate national carbon price of CAN$30 a tonne, rising $15 a year till it hits $200 by the end of the next decade, and perhaps as high as $265.

The trouble is that carbon pricing even at low levels, let alone these higher figures, is already politically unpopular. Jaccard and his colleagues believe that this political fight is not likely to go away and is also the main reason why an effective carbon price has never been implemented. But surveys consistently show that direct regulation by government is for most voters much more politically acceptable than carbon pricing.

So Jaccard wanted to see if a more activist government approach—in the form of flexible regulations such as low-carbon fuel standards, the shutting down of coal plants if they do not have carbon capture and storage, and industry-specific performance requirements—could complement a lower carbon price while achieving the same level of emissions reduction. His modelling showed that such policies married with a much lower carbon price of $40 a tonne by 2030 could indeed hit the government’s current mitigation target.

He notes that no jurisdictions have adopted a ‘hardcore’ carbon-price-only approach anyway. California for example, which has achieved some of the most rapid emissions reductions in North America, does have a modest price on carbon of $15 a tonne through its cap and trade programme that is linked to Ontario and Quebec.

But economists reckon that roughly 90 percent of these reductions have come from direct regulation, not emissions trading. Both Ontario and Alberta have complemented their carbon pricing schemes with laws requiring that coal plants be shut down. And the federal government is keen to offer substantial funds for clean innovation to fix what is not just a market failure (where the societal cost of greenhouse gas emissions is not captured in the price of fossil fuels), but also still in many cases where there is an absence of technological solutions.

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High carbon prices are politically unpalatable, but there are other options

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