Slides from Alex Wood's (Sustainable Prosperity, Ottawa) presentation at the Sept 18, 2013 Citizens Climate Lobby - Ottawa event in Westboro (Can we price carbon and win - for the Economy and the environment).

1. Pricing Carbon
Alexander Wood
Senior Director, Policy and Markets
awood@sustainableprosperity.ca
Twitter: @ALEXatSP

2. Master 2
Making markets work for the environment 2
Outline
• Why price carbon?
• Case studies of carbon pricing:
• British Columbia
• Europe
• California-Quebec

3. What is an externality?
Marginal Social Cost
Externality
Marginal Private Costs

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Welfare loss of an externality

5. Background: Costs of Climate Change
• Climate change will have high costs
– $5 billion/year by 2020
– Could be as high as $43 billion/ year by 2050 (NRTEE)
• Distributional impacts of climate change: who is
causing it and where are the impacts felt ?
– Unfortunately, it’s often the people who contribute the
least who have to pay the most (i.e. Northern
communities, low income communities etc.)

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Social Costs of Carbon
• Socially optimal price of Carbon
– meant to be a comprehensive estimate of climate change
damages and often includes costs such as changes in net
agricultural productivity, human health, and property damages
from increased flood risk
• Social cost of carbon: the damage on society that
comes from emitting one more tonne of carbon
dioxide into the atmosphere
– The amount of what the social cost of carbon should be set at is
debated
• Government of Canada uses a rate of $25/tC
• US government recently updated their rate from $23.80/tC to $38

7. Estimates of social cost of carbon

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Market Based Instruments for
Climate Change
Two main instruments:
Cap and trade
• sets a maximum level of pollution, a cap, and
distributes emissions permits among firms that
produce emissions
Carbon tax
• imposes a tax on each unit of greenhouse gas
emissions and gives firms and/or households an
incentive to reduce pollution whenever doing so
would cost less than paying the tax

9. Carbon pricing across the world

10. Case Study: BC Carbon Tax
• Introduced July 1 , 2008, it was North America’s first
carbon tax
• Started at $10tC, designed to rise to $30tC in 2012
(current rate)
• Applies to almost all fossil fuel use in the province,
including gasoline, diesel, propane, natural gas, and coal
• Covers 77% of the province’s GHG emissions from
residential, commercial and industrial sources
• Tax designed to be “revenue neutral”; all revenues used to
reduce other taxes through tax cuts and tax relief to low
income populations
– No overall increase in taxation

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Case Study: BC Carbon Tax
Politically unpopular, future remains uncertain
Since the tax was introduced:
• BC’s per capita consumption of fuels declined
by 17.4% (increased by 1.4% in RoC)
• BC’s emissions have declined by 10% (1.1%
in RoC)
• BC’s economy has kept pace with the rest of
Canada’s

12. BC Carbon Tax

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European Emissions Trading System
(ETS)
• ETS is a EU-wide cap-and-trade system targeting
GHG emissions from electricity sector
• A clear example of political commitment to
addressing GHGs at economy-wide level, but a
poor model for implementation
• Plagued by problems with allocation of
allowances, complicated by economic crisis
• Has underperformed and needs reform

14. European environmental taxation:
economic impacts

15. European environmental taxation:
environmental effects

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Practical lessons on carbon pricing
• Recycling of pricing scheme revenues is what
determines its economic (and political) impacts
• Price level matters, “forward” price level matters
more
• As a matter of political strategy, act early