Broken Windows


Climate Policy and the B.C. Election

posted May 5, 2017, 6:31 PM by Joel Wood

Climate policy has (surprisingly?) become a hot topic in the 2017 British Columbia (BC) Election. All three major parties are proposing climate policies that are more aggressive than Business-As-Usual, but some are offering policies that are much more stringent than others. The current government’s climate policy plans (except for the carbon tax) are outlined in the Climate Leadership Plan available here, the NDP backgrounder is available here, and the Green Party backgrounder is available here.

The Carbon Tax:

Let’s first start with what the parties propose for BC’s signature climate policy: The carbon tax. Since July 2012, shortly after Christy Clark took over as Premier, the carbon tax has remained at $30/ton of CO2e.  The official line has always been that the tax will be increased when other jurisdictions implement comparable carbon prices. However, complicating matters is that the Climate Leadership Team hand-picked by Premier Clark recommended that the carbon tax be increased $10/t a year beginning in 2018. Further complicating matters is that the Trudeau federal government plans to implement a national carbon price floor of $40/t in 2021 and $50/t in 2022 (there are earlier years in the schedule, but BC’s current tax is in compliance). 

One indicator of the stringency of the proposed climate policies is to look at the proposed carbon tax schedules of the three parties:

Party

2018

2019

2020

2021

2022

Liberals

$30/t

$30/t

$30/t

$40/t

$50/t

NDP

$30/t

$30/t

$36/t

$43/t

$50/t

Greens

$40/t

$50/t

$60/t

$70/t

$70/t

 

The incumbent Premier has signalled that BC will comply with the federal carbon price floor and has been a supporter of the initiative since it brings laggard provinces up to BC’s level. The NDP has also stated that they will comply with the carbon price floor, but will slightly over-comply in 2020 and 2021. The NDP schedule is certainly more stringent, but the difference is very small especially since they only differ for 2 years. In terms of tax on gasoline, the difference in the 2021 rates is less than 1 cent a litre.

By committing to increase the carbon tax by $10/t for the next 4 years and broadening the coverage of the tax to include measurable fugitive and vented emissions as well as emissions from forest slash pile burning, the Greens have proposed the most stringent carbon tax plan by a wide margin.

 


Other aspects of policy stringency:

Where the stringency of the policy proposals is more difficult to assess is with respect to additional policies (e.g., regulations, subsidies, etc.). The Liberal’s plan to reduce emissions in the industrial and transportation sectors through a mix of regulations (e.g., energy efficiency standards for boilers, increasing the stringency of the Low Carbon Fuels Standard for cars, regulations on methane emissions, etc.) and subsidies (e.g., fuel switching incentives, Clean Energy Vehicle incentives, etc.). The Liberal plan states the following: “amending regulations to promote, more energy efficient buildings, developing requirements to encourage net zero ready buildings,..” which implies a regulatory approach to reducing emissions from the Built Environment.  However, the estimated reduction from these policies falls far short of the recommendations of the Climate Leadership Team.

Although the NDP ignored the Climate Leadership Team’s recommended carbon tax rate schedule, they whole heartily embraced the Team’s recommendation for a sector-by-sector approach to reducing emissions (where have we heard of the sector-by-sector approach to reducing emissions?). The NDP plan commits to setting emission reduction targets of 30% below 2015 levels by 2030 for the Industrial and Transportation sectors (6.4Mt and 8.4Mt respectively). For the Built Environment they commit to a 50% reduction target which amounts to 3.4Mt of annual emissions. However, details of how the targets will be met are not provided.

The Green proposal provides a substantial list of specific policies that they will implement. However, most are policies that I would expect to have a very small impact. There is a lot of information disclosure or Nudge policies. There is interesting stuff like distance based insurance and congestion pricing. There are also subsidy programs (e.g., home retrofit programs, etc.).  They have regulatory policies such as a Zero Emissions Vehicle mandate, emissions standards for commercial buildings, requirement for Urban Containment Boundaries, and a ban on new registrations of gas and diesel urban delivery vehicles in 2025. Overall it is difficult to assess the effect of all of these policies, some have tiny effects, some have large effects.

This is certainly the most difficult dimension to assess the proposals of the parties. The NDP’s proposed sector-by-sector targets are certainly more stringent than the reductions expected from the policies outlined in the Liberals’ Climate Leadership Plan; however, the history of Canadian climate policy suggests that targets are not necessarily meant to be achieved. Without details of specific measures it is impossible to say whether the targets are likely to be achieved. The Green Plan is a long list of measures, but with no details on the cumulative effect other than stating that they will meet the 2050 legislated target and the 2030 interim target recommended by the Climate Leadership Team. They certainly give more details though than the NDP plan.

 

Meeting the 2050 Target:

In regards to the 2050 target, the Climate Leadership Team put forth a suite of recommendations that would put BC on track to slightly undershoot the target based on their modelling. Therefore, the recommendations of the CLT can be used as a benchmark of whether a proposal is on track to come close to the target. The Liberal proposal ignores many recommendations and adopts a less stringent carbon tax schedule; this suggests the Liberal proposal is not on track to achieve the 2050 target. The NDP adopted the CLT’s recommendation of sector-by-sector reduction targets, but takes a less stringent carbon tax schedule; this suggests the NDP proposal is not on track to achieve the 2050 target. The Green Party proposal adopts the CLT’s carbon tax schedule and adopts their recommendation to broaden the base of the tax. They also adopt other recommendations such as implementing the Zero Emission Vehicle mandate. They also go beyond the recommendations of the CLT in many instances. The Green party’s proposal, when compared to the recommendations of the CLT, is the only proposal that is on track to come close to the 2050 target, and thus, is the most stringent of the proposals. The NDP’s targets are more stringent than the policies the Liberals have implemented, but targets aren’t policies.

 

Carbon Tax Revenue:

The parties also differ on how the carbon tax revenue should be spent. The Liberals in the past have indicated that “the carbon tax can only increase if every dollar is returned to citizens in the form of tax relief”. Under Gordon Campbell, that meant cuts to distortionary taxes, but under Christy Clark that has meant tax credits to favoured interest groups. And as many have pointed out, some of those tax credits already existed.  

The NDP plan indicates that they will maintain the associated Personal Income Tax cuts, but will increase the eligibility for the BC Low Income Climate Action Tax Credit to 80% of households and allocate carbon tax revenue to be spent on transit and clean energy (presumably by reversing the cuts to Corporate Income Taxes and other business taxes).

The Green Party plan says “the tax revenue should be invested to facilitate the low carbon economy”, and critiques the current regime as not “revenue-neutral”.

The Green Party and NDP are quick to praise the recommendations of the Climate Leadership Team; however, they have been quick to ignore the Team’s recommendation with respect to the carbon tax revenue. The CLT recommended reducing the PST by one percentage point. The CLT also recommended waiving the PST on electricity used by business, but the Liberals have already implemented this in the 2017/18 Budget.


Cost-effectiveness & Economic Effects:

Cost-effectiveness is a concept from environmental economics focused on achieving a level of emissions reductions at the lowest cost. Basically, you want to pick all of the low hanging fruit before getting out an expensive ladder. Carbon taxes are cost-effective because an individual or business will only undertake additional emissions reductions if the cost of that reduction is less than paying the tax. Therefore, they will do all reductions that cost less than the tax (the low hanging fruit), and none that cost more than the tax (the high hanging fruit). With a carbon tax, we aren’t forcing one individual to do expensive reductions while another does none; everyone does reductions that, on the margin, cost the same as the tax. Cost-effectiveness does not necessarily occur with regulations. For example, the sector-by-sector reduction targets, if implemented through regulations, may require more expensive reductions in emissions from buildings than from transportation to achieve the targets (or vice versa): there would be social savings from reallocating to equate the marginal cost of reductions. Regulatory policies can be cost-effective, but it would require the government to know the exact percentages across the sectors that equated the marginal costs of reduction (ensuring all pickers are picking fruit up to the same height).

To be cost-effective, the proposals would need to rely solely on carbon pricing instruments; however, none of them do. All three proposals rely on a mix of carbon pricing, regulations, subsidies, and other spending. Furthermore, all three have different levels of stringency making it difficult to assess relative cost-effectiveness without detailed modelling.

The Climate Leadership Team did commission modelling of their package of recommendations. If the recommendations of the Team were adopted, the modelling predicts that, at worst, BC’s GDP would be 1.4% lower in 2050 compared to what it would have been in the absence of new policies. They have a range of estimates; this is just the worst-case scenario. However, not following some recommendations, such as ignoring the recommendation to cut the PST, would probably be expected to affect these projections in a negative way.

 

Conclusion:

The Green Party unsurprisingly has the most stringent climate policy proposal. The NDP proposal is more stringent that of the Liberals, but that stringency depends critically on whether policies would be implemented to achieve the 2030 sectoral targets. If the targets are all talk, as targets often are in Canadian climate policy, then the proposals of the two parties differ only slightly in stringency. The Liberals and NDP do differ substantially on what they do with the revenues from carbon taxation, but that has more to do with how the parties weight equity versus economic efficiency than addressing climate change. This may not be too surprising as the carbon tax is least popular in Liberal strongholds, and most popular in NDP strongholds: to win the close ridings, both parties are moderating their positions.


What effect will BC LNG exports have on global GHG emissions? It depends on elasticities

posted May 2, 2017, 11:57 AM by Joel Wood   [ updated May 2, 2017, 11:58 AM ]

“What effect will BC LNG exports have on global (non-BC) GHG emissions?”

If I were trying to answer this question, I would start with trying to answer the following three questions.

Question 1: How will BC LNG exports affect the price of natural gas in the Asian markets? To determine this, we need to know information about the inverse-demand function for NG in Asia. If it is close to horizontal, then BC LNG will have negligible impact on the price of nat gas. The argument to support this is that BC exports would be a small portion of total quantity, therefore would have little impact on price. If it is steep instead, then BC LNG exports will have a bigger price impact, i.e., BC LNG exports are large enough to have a noticeable impact on price.

Question 2:  Natural gas and coal are clearly substitutes for the generation of electricity. How much will a change in natural gas price affect demand for coal? (i.e., What is the elasticity of substitution between natural gas and coal?)

Question 3: Is natural gas a complement or a substitute to the generation of electricity from wind and solar? Solar and Wind generation are intermittent (low capacity factors), fast ramping natural gas plants can fill the void left by intermittency. In this sense gas and renewables are complementary. Lower price for gas will lead to more renewables. On the other hand, base load gas generation could be a substitute to wind and solar: lower gas prices lead to more gas plants and less renewable capacity.


Questions 2 and 3 are mostly irrelevant if the answer to Question 1 is that BC LNG exports have a negligible effect on price. If this is the case, then BC LNG has a negligible effect on coal emissions and a negligible effect on renewables.

If BC LNG exports impact price, then the effect on global (non-BC) emissions will depend on the questions to Questions 2 and 3.

These are all questions that could be answered empirically, but require the right data and careful econometric analysis.

twitter essay on Trump Executive Order related to the Social Cost of Carbon

posted Mar 29, 2017, 2:35 PM by Joel Wood   [ updated Mar 29, 2017, 2:36 PM ]

I am not sure why my google site won't let me embed the tweets properly. But here is my best Cass Sunstein impression from yesterday:


1/ Here is the text of the EO on Energy Independence & Econ Growth. Disbands IWG on Social Cost of Carbon & all their reports withdrawn https://t.co/nHxuRckjtt

— Joel Wood (@JoelWWood) March 28, 2017

2/ "...when monetizing the value of changes in GHG emissions resulting from regulations" instructed to be consistent w/ OMB Circular A-4

— Joel Wood (@JoelWWood) March 28, 2017

3/ I am currently reading OMB circular A-4 from 2003, available here: https://t.co/QMRHucU3wK

— Joel Wood (@JoelWWood) March 28, 2017

4/ OMBCircularA4 p15: "analysis shld focus on benefits & costs that accrue to citizens&residents of the US". SCC low w/ national standing

— Joel Wood (@JoelWWood) March 28, 2017

5/ "..choose to evaluate a regulation that is likely to have effects beyond the borders of the US these effects shld be reported separately"

— Joel Wood (@JoelWWood) March 28, 2017

6/ So in reference to the EO: Use US SCC in BCA, & then report results w/ global SCC separately in the BCA. Now on to discount rates...

— Joel Wood (@JoelWWood) March 28, 2017

7/ OMBCircularA4 p34: "For regulatory analysis...provide estimates of net benefits using both 3% and 7%" IWG estimates SCC @ 2.5%, 3% & 5%

— Joel Wood (@JoelWWood) March 28, 2017


8/ But: "If..important intergenerational benefits or costs...consider a further sensitivity analysis using a lower but (+)'ve discount rate"

— Joel Wood (@JoelWWood) March 28, 2017


9/ So in OMBCircularA4 there is clear justification for calculating SCC at 2.5% & 3% as IWG did; but wld also req using 7% rather than 5%

— Joel Wood (@JoelWWood) March 28, 2017


10/ It also indicates that national standing (US only SCC) shld be used for the main BCA calc: IWG made normative choice to calc global SCC

— Joel Wood (@JoelWWood) March 28, 2017


11/ Result: A US-only SocialCostofCarbon is a small fraction of the global SCC, & calculated at a 7% discount rate will be very very small

— Joel Wood (@JoelWWood) March 28, 2017

Embedding a twitter feed in a Learning Management System (Moodle)

posted Feb 21, 2017, 9:55 AM by Joel Wood   [ updated Feb 21, 2017, 10:14 AM ]

In my first year of teaching ECON1950 Principles of Macroeconomics at TRU, in my course evaluations students indicated that they wanted more real world examples and applications of the material we were covering in class. One of the ways I addressed this deficiency in future offerings of the course was to create a twitter hashtag (#ECON1950) to share articles and news stories relevant to macroeconomics with my students. To make this feed accessible to all students, I embedded the feed in the Moodle site for my course (Moodle is the Learning Management System used at TRU for courses delivered on-campus). In this way, the twitter feed for that hashtag was visible for all students every time they visited the course site. What follows is a step-by-step guide to embedding a twitter feed in Moodle; though, this probably will also work for other Learning management Systems so long as they allow you to write html code. Here is what the end product looks like for my Economics of Climate Change course that I am currently teaching:





STEP1:    Begin sending tweets on a hashtag selected for your course, e.g., #ECON1950. Be sure to check the hashtag in advance to ensure it is available. After sending a few tweets, enter your hashtag in the twitter search box




STEP2: Click on the tab labelled “Latest”.
 
    


STEP3: Click on the 3-dots in the upper left-hand corner and select “Embed this search” from the drop down menu



STEP 4: Click “Create Widget” and copy [Ctrl-c] the resulting html code

S    STEP 5:  In your Moodle course site: click “Edit” on one of you’re the Moodle modules within your site (e.g., 7 September – 13 September), and select “Edit week” from the drop down menu

Tip: I usually create a module just for the twitter feed. 


STEP 6:  Click on the button that says “Show more buttons” when you hover the mouse over it
   

STEP 7: Select the html button (it looks like this <>). Paste the html code you copied in Step 5. Click “Save Changes”    




Carbon Pricing Links

posted Oct 24, 2016, 3:48 PM by Joel Wood   [ updated Oct 25, 2016, 6:29 AM ]

There has been lots of great stuff written over the past few weeks related to carbon pricing in Canada; so I thought I would make a list. These are just the ones I recall off the top of my head (Now updated with a couple suggestions from twitter). Has there ever been a more exciting time to be an environmental economist in Canada?

Tracy Snoddon (Sept 15): Time for Canada to install a federal floor under lagging carbon prices (Related C.D. Howe report)

Ross McKitrick (Sept 15): Drop all this carbon-tax boosterism; they could easily do more harm than good (Related University of Calgary School of Public Policy report)

Aaron Wherry (Oct 1): In theory, carbon has a price. We just aren't paying it  

Trevor Tombe (Oct 3): Put a price on emissions and let the chips fall where they may 

Marc Lee (Oct 4): A reality check on a national carbon price

Don Drummond, Nancy Olewiler, and Chris Ragan (Oct 5): Carbon price vs.regulations: The better choice is clear 

Andrew Leach (Oct 6): The challenges ahead for liberal’s carbon plan 

Andrew Coyne (Oct 7): Liberals’ carbon price hardly a drastic measure 

Trevor Tombe (Oct 11): Here’s how much carbon pricing will likely cost households 

Andrew Coyne (Oct 12): Canada a small part of global emissions problem, but costs of inaction are not zero 

Paul Boothe and Julia Hawthornthwaite (Oct 12): Why the difference between taxing and trading carbon matters 

Joel Wood (Oct 12): The case for Canada going it alone on carbon emissions 

Blake Shaffer (Oct 14): Carbon tax: The real debate is about how the revenue is used 

Matt Horne (Oct 14): Justin Trudeau is right to break the national carbon pricing logjam

Jason MacLean (Oct 14): The Liberal government needs to boost its proposed price on carbon, while getting rid of subsidies to the energy sector

Paul Boothe, Mel Cappe, and Chris Ragan (Oct 16): A federal carbon price demonstrates policy progress, perils 

Andrew Leach, Mark Cameron, and Chris Ragan (Oct 18): How a revenue neutral carbon price can help Saskatchewan 

Jack Mintz (Oct 20): Canadians are going to pay for a lot more climate-policy pain than just the Trudeau carbon tax 

Brett Dolter (Oct 21): A White Paper Response to Saskatchewan’s Climate Change White Paper 

Paul Boothe, Mel Cappe, Don Drummond, Glen Hodgson, Richard Lipsey, Nancy Olewiler, France St-Hilaire and Christopher Ragan (Oct 24): The PM’s announcement on carbon pricing was a significant step, but important work remains to be done

The Carbon Tax & the BC Election

posted Aug 29, 2016, 11:47 AM by Joel Wood   [ updated Aug 29, 2016, 8:11 PM ]

Last week I wrote down a few thoughts about the misnamed BC Climate Leadership Plan and I hypothesized that refusing to increase the carbon tax may be strategic; either trying to maximize BC's share of any federal transfers that may be on the table in the ongoing provincial-federal climate policy discussions and/or trying to win the upcoming provincial election. In relation to the second point I presented maps of carbon tax support in BC federal electoral districts and the results of the 2013 BC election. In this post, I will look at the data behind those maps more closely.

Luckily the data behind one of the maps, adapted from the recent paper "The Distribution of Climate Change Public Opinion in Canada", is available for download. The dataset includes an estimate of the percent of the population that supports a carbon tax for each federal electoral district. I then tried to match each federal electoral district to BC provincial counterparts. In some cases this was ad hoc since some provincial electoral districts overlap multiple federal districts (I just tried to use my best judgement based on looking at the maps). I could then match the carbon tax support with results from the 2013 BC provincial election. The figure below shows average support for the carbon tax in the electoral districts won by each party. Support for the carbon tax was below the BC average overall in districts won by the BC Liberals; though it was still over 50%. Support for the carbon tax was above the BC average overall in districts won by the NDP, Green Party, and Vicki Huntington.


However, there were districts with strong support for the carbon tax that voted Liberal and districts with low support that voted Liberal. The next figure plots carbon tax support against Liberal vote share in each electoral district. Despite the carbon tax being a policy implemented by the Liberals, there is indeed a negative relationship between support for the carbon tax and the percentage of votes for the Liberals. This could help explain why the Liberals have been reluctant to increase the carbon tax since 2012.


Let's look at another metric: the margin of victory/defeat for the Liberals in each district. For districts won by the Liberals, this is the Liberal vote share minus the vote share of the runner up. And in districts this is the Liberal vote share minus the vote share of the winner. A negative relationship between carbon tax support and the margin of victory/defeat is apparent in the following figure. 


But maybe the Liberals are going to win most of the districts where carbon tax support is low regardless of what they do with the carbon tax. Places like Fort Langley-Aldergrove where the tax has sub-50% support are going to vote Liberal for other reasons. Where the carbon tax might matter is in districts where the votes were close in 2013. I restricted the sample to the districts where the Liberals either won or lost by less than 5% of the vote and redid the plot. There were 14 districts that had a "close" result in 2013. The Liberals won 9 of these districts to secure their majority of 49 seats in the legislature.If all their other seats remained in 2017, they would need to win 3 seats from these "close" districts to maintain a majority. Five of these districts have below average support for the carbon tax (though still >50%). There is still a negative relationship in these close districts between carbon tax support and the margin of victory/defeat. In 2013 the carbon tax was a non-issue as the Liberals and NDP had both pledged to maintain it at $30/t (they only differed on how the money was to be spent). The carbon tax could certainly become an issue in these close districts if the NDP promises increases. 



After looking at the charts above, it appears that keeping the carbon tax at $30/t (the level it has been since 2012) probably won't hurt the Liberals in the next election, it may even help. They can attract both people who support the carbon tax and those who oppose it (with an unorganized Conservative Party in BC, the freeze of the tax may placate voters who do not support the carbon tax). 

The era of climate leadership is over; The era of climate partnership may be upon us

posted Aug 24, 2016, 9:55 AM by Joel Wood   [ updated Aug 24, 2016, 9:57 AM ]

BC released their Climate Leadership Plan to a chorus of boos last Friday afternoon (though a few people were saying boo-urns, e.g., Resource Works, CAPP). The plan title is clearly a misnomer; with no further increases planned for the carbon tax and Premier Clark emphasizing letting other jurisdictions catch up, the plan is the official end of Gordon Campbell's legacy of climate policy leadership. With Alberta's new carbon tax slated to match BC's on January 1st, 2018, the BC plan represents the end of BC's climate leadership, and the beginning of (hopefully) an era of climate partnership in Canada.

The Premier cited the vague concept of "competitiveness" as a reason to wait until other jurisdictions catch up before raising the tax. However, according to an EcoFiscal report, the competitiveness impact of carbon pricing is relatively small for BC's economy compared to the economies of other Canadian Provinces. Furthermore, the coverage of the carbon tax does not extend to the LNG boom the province has been dreaming about; it is my understanding that fugitive methane emissions will be handled by regulations and other facility emissions through an alternative regulatory instrument similar to Alberta's Specified Gas Emitters Regulation (a hybrid tax/cap system based on emissions intensity). So increasing the carbon tax would not affect the province's LNG export plans.



Competitiveness is just one aspect of climate policy though; the external damages from our emissions should also be considered. One estimate of these damages is the Social Cost of Carbon (SCC) as estimated by the US EPA. The EPA's SCC ignores low probability catastrophic risks and equity weighting, so should be considered a lower estimate of the external damages of emissions, but it is a good place to start until others catch up. The BC carbon tax is now lower than the EPA's central estimate of the SCC, and the SCC increases over time. So in BC our carbon price no longer accounts for the damages our emissions will impose. I am OK with the BC government not focusing on specific targets of emissions reductions, but in the absence of targets, I'd like to see them focus on a carbon price more closely matching the SCC; this would be climate leadership.



I have seen this plan branded as "giving up the climate battle" and alternatively as standing up to "eco-activists"; but I do not think those narratives fit well. Maintaining the highest carbon price in North America hardly represents giving up. And if the Premier wanted to stand up to "eco-activists", why would she have selected them to sit on the governments expert advisory panel? I am only, at best, an armchair political scientist, but this probably has more to do with the new federal government and/or the next provincial election. 

During the federal election, the Liberals signalled their plan to take a provincial-federal cooperative approach to climate policy. They recognised the actions that BC and other provinces had unilaterally taken, and did not want to come in with a top-down approach. Trudeau even called it a "medicare approach to fight climate change"; to me this suggests that there will be "carrots" on the table for provinces that implement climate policy. Indeed, post election, the Premiers and the federal Environment Minister have been meeting about climate policy and there is clearly bargaining and negotiation going on to determine how the carrots will be awarded. Andrew Leach made the comment on twitter that there are now 3 main camps within these negotiations: BC & AB focusing on the level of policy effort (i.e., carbon price), ON & QC focusing on emissions targets, and SK focusing on inaction. If there are carrots on the table to be eaten in exchange for more stringent climate action, Premier Clark probably wants her fair share. If she committed her province to an increasing tax while these negotiations are ongoing, she may be limiting her share of the carrots. 

But maybe the prov-fed negotiations and talk of other jurisdictions catching up are a convenient excuse. This could be more about winning the next election. As the following figure (cropped from cool new research) shows, the carbon tax enjoys a majority level of support across BC, with Langley (I blame Jordan Bateman.....joking) and North Eastern BC being the only exceptions. 

And below are the results of the 2013 provincial election (adapted from CBC's election results website). From these maps it is difficult to visually identify a correlation between carbon tax support and voting Liberal. The two areas where the carbon tax does not enjoy majority support (Langley & North Eastern BC) do vote Liberal, but Premier Clark didn't scrap the tax, she just kept it at its current level. The tax does enjoy very strong support along the SkyTrain Expo Line Corridor, encompassing areas that voted NDP. But i think a statistical analysis would be needed to draw any conclusions. Although I do see one potential issue with doing a statistical analysis since people who support the carbon tax may not necessarily support further increases: that is a different question than was asked. 


So where does that leave us? This could be a new era of pan-Canadian Climate Partnership or it could be about winning the next election. The BC election is not until next May, so depending on how the prov-fed negotiations go, a campaign announcement of an increased carbon tax accompanied by a basket of federal carrots is still a possibility.

Carbon taxes in the news

posted Mar 3, 2016, 10:46 AM by Joel Wood

Over the past few days there have been a few news article focused on carbon taxes. With the First Ministers meeting in Vancouver today to discuss pan-Canadian carbon pricing. it is great that the evidence on carbon taxes is getting so much print space.

This article in the New York Times highlights a paper on the BC carbon tax by economists Nic Rivers and Brian Murray.

Economist Trevor Tombe also makes the case in the Financial Post for a revenue neutral carbon tax: the cheapest way to cut carbon emissions. 

The external examiner for my PhD thesis, Joel Bruneau, is quoted in this article in the Financial Post disputing some of the questionable claims by Saskatchewan Premier Brad Wall about carbon pricing.

And I had a commentary in the Vancouver Sun arguing that the BC carbon tax should be returned to being truly revenue neutral.

On the U.S. front, Resources for the Future (probably the best think tank in the world; their researchers regularly publish in top economics journals) had a seminar contrasting carbon taxes and cap and trade, they have also launched a twitter account solely focused on carbon taxes @RFFCarbonTax

A property rights solution to biosolids in the Nicola Valley

posted Dec 22, 2015, 10:59 AM by Joel Wood

People in the Nicola Valley (just south of where I am, Kamloops) have been up in arms about the application of biosolids (a fancy name for human sewage) at a composting site adjacent to the Nicola River.There is also another biosolids site planned (the Dry Lake site) in another area of the Nicola Valley, and residents in the region have voiced concern that the new location is uphill from a community well.

Today news broke that 19 people concerned about the new biosolids site, pooled their money and purchased the proposed Dry Lake site. This is a perfect example of a property rights solution to a perceived environmental threat. The residents are obviously willing to pay to avoid having a biosolids site in their neighbourhood, and more importantly were willing to pay more than the biosolids company. This will definitely turn into a useful example for my Environmental Economics class in the future.

This type of solution is not the norm with environmental issues though. Often the free-rider effect will prevent this from happening; there were 19 individuals who purchased the land, but more individuals probably will receive a perceived benefit from the purchase. In this case 19 individuals were able to form a coalition, but this would not always be the case. Also, people opposed to an activity will rely on influencing the political process to limit the activity. For example, there were a lot of mushroom barns near where I area up in the Lower Mainland and these barns smell terrible. As suburban residential development encroached on agricultural land, the new residents successfully lobbied municipal politicians to change bylaws to prohibit existing neighbouring mushroom barns. These new residents could have purchased the barns and closed them, but they used the political process instead.The political process is often cheaper for the victims and better at controlling for free-riders....though not cheaper for the polluting property owner.

A Breath of Fresh Air for Federal Climate Policy

posted Oct 20, 2015, 12:09 PM by Joel Wood   [ updated Oct 20, 2015, 2:09 PM ]

The election of the Liberals and Justin Trudeau to a majority government feels like a breath of fresh air on the Canadian climate policy front. We kept waiting and waiting for those long promised Greenhouse Gas emission regulations for the oil and gas sector (among others…) that never seemed to materialize. However, in federal Canadian climate politics, that fresh air always has the potential to dissipate quickly.

First things first, the Liberals should name an Environment Minister who knows the file well. Stephan Dion has been Environment Minister before, so he would bring familiarity and experience to the portfolio. However, I think Trudeau should go with the newly elected Will Amos, an environmental lawyer who has a wealth of experience advising past federal governments on environmental policy.  (Note: unrelated to climate policy, but Will Amos wrote an excellent paper on Canada’s offshore oil spill liability laws).  I think Amos would bring energy, expertise, and passion to the environment file that will make up for any ministerial inexperience.

Second, as Dave Sawyer noted in a blog earlier today, the incoming Trudeau government needs to put the political focus on actually implementing emissions reduction policies, not on national targets. Many blame the dearth of effective federal climate policies solely on Stephen Harper and the Conservatives, but this was also true under Jean Chretien and the Liberals. Canada’s federal governments have had a history of agreeing to seemingly “modest” emission reduction targets. Chretien did this with Kyoto and Harper did this again at Copenhagen. Both targets would’ve required climate policies that imposed a price on carbon of well over $100 a tonne which is much more ambitious than what other countries agreed to meet. Given this high marginal cost of emissions abatement, it is no wonder federal leaders have been happy to ignore their obligations. That said, Trudeau should attend COP21 in Paris, and he should invite Elizabeth May, Christy Clark, Rachel Notley, Kathleen Wynne, and Phillippe Couillard to come with him. He should just keep in mind the past history of Canadian climate targets and only agree to a target on which he can actually deliver the government policies needed to ensure achievement.

Trudeau’s proposed climate policy during the campaign was for Canada to continue with provincial climate policy action, but with a coordinating and support role of the federal government. The idea being that our largest provinces have taken the lead on implementing carbon pricing policies, so the time for a top-down federal policy is past. This started with Alberta in 2007 implementing its Specified Gas Emitters regulation that imposes a price of $15 a tonne on emissions in excess of targets on emissions intensity. British Columbia followed suit in 2008 by implementing a broad-based, revenue-neutral carbon tax that is now $30 a tonne. Quebec implemented a cap and trade policy that is now linked with California’s.  And Ontario has plans to join the Quebec and California system. Prices in the permit auctions in the cap and trade system are currently under $15 a tonne. One federal role would be to encourage, either with a carrot or a stick, the laggard provinces to implement carbon pricing policies. Another federal role would be to encourage some sort of standardization in carbon price across provinces; again this could be done using carrots or sticks. Although I should note that you cannot guarantee the same prices across provinces since with cap and trade the permit price will vary over time, but some sort of Cap/Price Adjustment process could be agreed upon with the provinces.

However, these federal roles will take a lot of work and a lot of negotiating with the Premiers and the Council of Canadian Ministers of the Environment. Dave Sawyer proposes that in the meantime, the feds could go ahead and immediately raise the federal excise tax on gasoline by 2 cents per litre. I am definitely a two-handed economist on this one. On the one hand, the federal gas tax has been 10 cents a litre since 1995 and does not increase with inflation. That means that every year, we are paying a lower federal gasoline tax in real terms. By increasing the federal gas tax to 12 cents a litre, the federal government would be imposing a modest carbon tax across the country to take immediate action to reduce emissions. And the policy would be effectively temporary as positive inflation would eventually eat the two cent tax increase.  This allows the federal-provincial negotiations to get any standardization process right without losing time on emissions reductions. On the other hand, I am not sure how raising the federal gas tax would affect the federal-provincial negotiations. BC has been a leader on climate policy and is Trudeau’s best potential provincial ally on climate policy. I am not sure Premier Christy Clark would be too happy with the feds rewarding BC’s early action with a federally imposed tax increase. Maybe a provincially-differentiated tax could be worked out, but again, this would lead to delays.

However things eventually shake out, it is an exciting time for environmental policy wonks in Canada.

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