Harmonized Canada / U.S. Carbon Policy

1. 1
Dave Sawyer | dave@enviroeconomcis.ca
With a little help from some friends.

2. Overview
In the dark: lead, lag or harmonize?
Kyoto align, Copenhagen harmonize, 2030 NDC lag
Me and my uncle: competitiveness neurosis
Misaligned prices and leakage
A long strange trip: fragmented harmonization
Unify at home; continued focus on harmonization and alignment
2

3. In the Dark: lead, lag or harmonize?
Beugin’s Pics: NRTEE Parallel Paths, 03‐31‐2011 (Bataille and Peters)
CANUSA CGE modelling on leading, lagging and
harmonizing
• Align on Ps, not Q’s given misaligned abatement costs
• Oil and gas in CDN vs coal ELEC in US
3
Curve crossover not public
• CDN O&G backstop techs in play at higher Q’s
• US ELEC potential exhausted, costs rise in buildings,
transport
• Has this changed with US oil and gas, renewables costs?

4. In the Dark: lead, lag or harmonize?
Fischer’s Pics: Better Together, 09‐08‐2011 (Sawyer ad Fischer)
4
Compared ACESA and Copenhagen Targets
• Partial equilibrium using EIA ACESA and CDN MAC
Curves
• CGE analysis of relative impacts
Importance of cross‐border allowance trade a resilient
policy learning
Allowance
Price
Total Cost
($B CDN)
Share of
GDP
Alone Can TTC $60 $2.4 0.18%
US ACESA $30 $18.5 0.13%
Together Can TTC
$31
$1.7 0.13%
US ACESA $19.1 0.13%
‐30%
‐10%
10%
30%
50%
70%
90%
TTC Alone TTC
Together
US ACESA
Alone
US ACESA
Together
Cross border trade
International Offsets
Domestic Offsets
Covered Abatement
Canada USA
Compliance in 2020
Allowance Trade
Allowance Trade

5. Me and My Uncle: Competitiveness Neurosis
Bataille’s Pic, When the US Sneezes, Canada gets sick 21‐10‐2014 (Sawyer and Bataille)
5
CGE modeling on EIA GHG trajectory of proposed
CPP
• Asymmetric US policy impact on Canada
• Large indirect GHG reductions in Canada
through income, demand.
• Indirect GDP impacts surprisingly high
• Relative intensities matter between sectors;
some winners some losers

6. Me and My Uncle: Competitiveness Neurosis
Peter’s and Beugin’s Pic, EcoFiscal Commission 05‐04‐2016 (Navius)
6
CGE alternatives analysis
• Autarky Ctax/full auction, $100, tax
cuts
• Clear leakage risk in home and away
markets

7. Me and My Uncle: Competitiveness Neurosis
Dave’s Pic, Impact Analysis of Ontario’s Cap & Trade Program 17‐05‐2016
7
Regulatory analysis for Ontario’s cap and trade
• High cross‐border trade in allowance given
P’s and Q’s
• Linked vs autarky carbon prices $20 vs
$160
• Free allocations mute cost impact
significantly
• Proceeds recycling matter less

8. A long strange trip: fragmented harmonization
Dave’s Pic, NRTEE Achieving 2050 16‐04‐2009
8
With federal inaction, deeply fragmented
subnational architecture
Fragmentation Ok when ambition and costs low
But with costs of deep decarbonization trajectory,
fragmentation has to move to alignment
domestically, then globally.

9. A long strange trip: fragmented harmonization
Dave’s Pic, Mind the Gap 26‐04‐2016 (Sawyer and Bataille)
9
Current and Developing Policies:
• BC Ctax
• AB SGER > Climate Leadership
• SK Boundary Dam CCS, SK 50% renewable power
• ON Coal ban, WCI
• QC WCI
• NS RPS
• Waste regs in provinces
• Federal coal generation regs and café vehicle standards,
• Federal methane regulations for oil and gas
(follows US, AB)
QC and ON True‐Up:
22 to 25 Mt in 2020
73 Mt in 2030

10. A long strange trip: fragmented harmonization
Last Thoughts
10
US movement will always catalyze action in Canada
• Methane regulations, Café vehicle standards
US inaction no longer an excuse for Canadian inaction
• Design with OBA now more or less dealing with trade exposure in most CDN
jurisdictions
Will WCI continue to build carbon bridges?
• Big political question: access to US cost containment versus over allocation
and capital flight
Continue to harmonize on regulations; seek longer term price alignment,
linking by degrees
• In the dark: restart cross‐border analytics, brining in Mexico