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.

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

3. Ecofiscal’s third major report on
climate policy
3
1. Context

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?
4
1. Context

5. Examples of non-pricing climate
policies
5
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
6
1. Context

7. A framework for assessing additional policies
7
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
8
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)
9
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
10
2. Framework

11. Putting it all together
11
3. Applying the framework

12. Step 1: Describe key policy characteristics
12
3. Applying the framework

13. Step 2: Assess likely policy performance
13
3. Applying the 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:
14
3. Applying the framework

15. Step 4: Benchmark cost-effectiveness
15
3. Applying the framework

16. Case studies
1. Federal methane regulations
2. Quebec electric vehicle subsidies
3. Alberta coal phase-out
16
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)
17
4. Case studies

18. 18
1. Federal regulation on oil and gas methane
emissions
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
19
4. Case studies

20. 2. Electric vehicle subsidies in Quebec
20
4. Case studies

21. 2. Electric vehicle subsidies in Quebec
21
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
22
4. Case studies

23. 3. Alberta phase-out of coal-fired
electricity
23
4. Case studies
Health benefits of
$21/tonne

24. Case Study Summary
24
4. Case studies

25. Building a climate policy package
25
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
29
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