Canada’s Ecofiscal Commission’s latest report, Supporting Carbon Pricing: How to identify policies that genuinely complement an economy-wide carbon price, provides governments with a framework to identify these policies. In particular the report provides three rationales for when non-pricing policies are justified: they fill a gap in carbon pricing policies (gap-fillers), they boost the signal of the carbon price (signal-boosters), or they generate significant co-benefits (benefit-expanders).
In this webinar Jason Dion will go through the findings and recommendations of the report, and answer questions.
Supporting Carbon Pricing: complementary policies that work with carbon pricing
1. Supporting Carbon Pricing
How to identify policies that genuinely complement
an economy-wide carbon price
Canada’s Ecofiscal Commission
June 2017
2. Overview
1. Context
2. A framework for thinking about complementarity
3. Applying the framework
4. Three case studies:
• Federal methane regulations
• Quebec electric vehicle subsidies
• Alberta coal phase-out
5. Building a climate policy package
6. A note on coordination and federalism
7. Recommendations
2
4. Key policy questions
1. What non-pricing policies might make sense in addition to
carbon pricing?
2. How can policy-makers identify those policies that
genuinely complement a carbon price... But also those that
don’t?
3. How can governments assemble a policy package that will
achieve our GHG objectives at lowest cost?
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1. Context
6. Defining ‘complementary’
• A climate policy is complementary to a carbon price if:
– It is effective (delivers additional GHG mitigation)
– It is cost-effective (more on defining this later)
…not all additional climate policies are complementary
• Of course, other considerations can matter too:
– Fairness
– Competitiveness
– Political acceptability
• We focus on effectiveness and cost-effectiveness
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1. Context
7. A framework for assessing additional policies
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1.What is the rationale for
the additional policy?
2. How does it interact with
carbon pricing?
3. How is the policy
designed?
What does that mean for
effectiveness
(i.e., emissions reduced)
What does that mean for
cost-effectiveness
(i.e., the costs of doing so)
2. Framework
8. 1. Rationale for complementarity
• Gap-filler:The policy covers GHG emissions not
covered by the carbon price
– e.g., Montreal Protocol regulating HFCs
• Signal-booster:The policy addresses market
problems to make carbon pricing work better
– e.g., Providing EV charging network infrastructure
• Benefit-expander:The policy achieves both GHG
mitigation and other objectives
– e.g., Measures to improve urban walkability
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2. Framework
9. 2. Policy interactions
• Complementary policies and carbon taxes can
support each other (additional GHG mitigation)
• Complementary policies and cap-and-trade
systems can overlap with each other
(GHG mitigation not necessarily additional)
• Interactions affect linked cap-and-trade systems
in a slightly different way (financial flows can
also be affected)
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2. Framework
10. 3. Design Details
• Stringency: increases policy
effectiveness
• Coverage: increases policy
effectiveness
• Flexibility: reduces the costs of
policy, improving cost-
effectiveness
• Predictability: leads to more
emissions reductions and lower
costs
• Good governance: improves
policy performance
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2. Framework
14. Step 3: Quantify emissions reductions and
costs
Emissions reductions:
• The difference between two cases:
1) emissions levels under the policy
(i.e., the policy case)
2) emissions levels in the absence of the policy
(i.e., the counterfactual)
Costs:
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3. Applying the framework
16. Case studies
1. Federal methane regulations
2. Quebec electric vehicle subsidies
3. Alberta coal phase-out
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4. Case studies
17. 1. Federal regulation of oil and gas
methane emissions
Description:
Federal regulation to
reduce oil & gas methane
emissions 40-45% below
2012 levels by 2025
Approach:
Literature review
(Regulatory Impact
Analysis Statement)
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4. Case studies
19. 2. Electric vehicle subsidies in Quebec
Description:
• “Drive Electric” program -
subsidy of up to $8,000
per vehicle
• Runs until 2020 or until
available $93M is
exhausted
Approach:
Modeling by Navius
Research
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4. Case studies
22. 3. Alberta phase-out of coal-fired
electricity
Description:
Phasing-out coal-fired
electricity generation in the
province by 2030
Approach:
Modeling by Ecofiscal
Commission
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4. Case studies
23. 3. Alberta phase-out of coal-fired
electricity
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4. Case studies
Health benefits of
$21/tonne
25. Building a climate policy package
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5. Policy packages
Easy Hard
Gap-fillers Signal-boosters
Benefit-expanders
26. 26
Building a climate policy package
Harmonize implicit and explicit prices
Use caution with overlapping policies
Use integrated modelling to forecast GHG reductions
and to assess interactions
Implement regular review and evaluation of GHG
policies
Define processes for intergovernmental coordination
5. Policy packages
27. 27
6. Coordination
Implications for federal non-pricing
policies that overlap with carbon pricing
BC and Alberta Carbon taxes:
emissions reductions
costs
Ontario and Quebec
cap-and-trade systems:
emissions reductions
costs
permit imports from
California
Not
applicable to
‘gap-filling’
policies
e.g., CFS
28. 28
6. Coordination
Implications for provincial actions under
the Pan Canadian Framework
BC and Alberta Carbon taxes:
Provincial complementary policies do
not contribute to required policy
action under PCF
(minimum carbon price unaffected)
Ontario and Quebec
cap-and-trade systems:
Provincial complementary policies do
contribute to required policy action
under PCF (declining caps are “easier”
to achieve)
These effects could increase the differences in
explicit carbon prices seen across provinces
29. Recommendations
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7. Recommendations
1. Governments should make carbon pricing the core of their
climate policy, with steadily increasing stringency
2. Governments should clearly demonstrate
complementarity before adopting non-pricing policies
• Gap-filling
• Signal-boosting
• Benefit-expanding
3. Governments should strive to coordinate carbon pricing
and complementary policies across the country
30. Recommendations
30
6. Recommendations
4. Governments should regularly review and assess both
individual climate policies and the larger policy package
5. Governments should rely on integrated modelling to
assess the overall effectiveness of proposed and existing
policies
6. With the implementation of an economy-wide carbon
price, governments should phase out and avoid
redundant, high-cost, or ineffective policies
Editor's Notes
Use a verbal walk through example when presenting this
Step 5 is to make an assessment re: complementarity
Policy will apply nationally, but British Columbia, Alberta, and Saskatchewan will be disproportionately affected because of their large oil & gas sectors
The three provinces each have planned or existing measures covering methane from oil & gas, but typically focus only on emissions from venting and flaring
Affected provinces will likely be able to pursue equivalency agreements
Quantity-focused policy and will not stipulate use of specific technologies
Regulations will not interact with carbon pricing policies directly, they could interact with offset systems
Timetable for implementation recently pushed back from 2018-2020 to 2020-2023
Alberta has 18 coal plants in total, responsible for 38% of the province’s electricity generating capacity and 62% of its electricity generation; 6 are captured by this policy
In Alberta, the sector’s emissions currently fall under the Specified Gas Emitters Regulation, but as of 2018, they will be regulated under the province’s planned Carbon Competitiveness Regulation
$1.3 billion compensation payout to the owners of the 6 coal plants spread out between 2017 and 2030
Co-benefits reduce the cost of the policy by $21/tonne
Three case studies, three different results
Remember—case studies aren’t intended to be the last word: intended to illustrate application (and utility) of the framework
…They highlight the importance of considering policy interactions, as well as co-benefits
Three case studies, three different results
Remember—case studies aren’t intended to be the last word: intended to illustrate application (and utility) of the framework
…They highlight the importance of considering policy interactions, as well as co-benefits
-PCF’s carbon price instrument flexibility affects the incentives for implementing complementary policies
-To the extent that the GHG mitigation ambition of a carbon-taxing province is only defined by the requirements of the Pan-Canadian Framework, it may choose to leave opportunities for low-cost mitigation from complementary policies unrealized
-upshot would be higher overall cost of GHG mitigation and additional complications for firms operating in multiple provinces with divergent policies