Canada’s Ecofiscal Commission argued in a report published on June 8 that there are policies government’s can implement that enhance the operation of a carbon pricing mechanism. But Mark Jaccard, an economist and professor at Simon Fraser University, argued in an ideal scenario, complementary policies are unneeded.
“I actually don’t believe you need complementary policies,” he said during an Ecofiscal Commission webinar last week, adding “I think there is a political reason why we need them.”
Jaccard highlighted the case of the coal phaseout in response to a question on the economic efficiency of complementary regulations. Additional rules calling for the elimination of coal-based power by a certain date would be unnecessary if the carbon tax rises fast enough. The phaseout of coal would happen as a result of the increasing carbon tax.
“I would argue there is no economic rationale for anything other carbon pricing,” he said. “My point is those arguments for complementary measures are mostly bogus in my opinion. You could do it all with the carbon tax and the only reason you wouldn’t is because we, humanity, can’t handle this global collective action problem and make decisions within jurisdictions.”
In essence, the argument is that politicians have been reluctant to impose carbon prices that reflect the true social cost of carbon and that’s why other policies targeting a number of different sectors are needed.
Ken Green, senior director of the Center for Natural Resource Studies at the Fraser Institute, agreed noting that if a government tried to put a price on carbon at the high end of the social cost of carbon, the public would never accept it, “so they hide the ball.”
“They hide the ball in housing efficiency regulation. They hide the ball in appliance efficiency regulations. They hide the ball in water restrictions which really are saving energy by not moving water. They hide the ball in a thousand different ways that we already have on the books that are redundant and really their purpose is to reduce energy use,” he said.
It’s too early to write off Canadians’ support for a rising carbon price, according to Chris Ragan, chair of the Ecofiscal Commission.
He countered that it’s not yet clear whether the Canadian public would support, or not, a more rapidly escalating price on carbon. In his view, this is where the recycling of revenue from the carbon price comes into play. If this can be figured out, then it could go a long way to combating the political infeasibility of a rising carbon price.
But the case for complementary measures makes sense because there are gaps in government policy. For example, the federal government has mapped out a carbon tax to 2022 but has a longer-term vision of near economy decarbonization by the middle of the century.
Carbon pricing is an important tool in helping Canada meet its climate commitments, acknowledged Erin Flanagan, program director of federal policy at the Pembina Institute. “But at the current moment we don’t have sufficient prices in place to allow us to simply rely on that measure. We need other well designed measures to help us get there. So we take a view that it’s an important tool in the toolkit but that it’s unlikely to allow us to get to our targets on its own.”
The Ecofiscal Commission’s Supporting Carbon Pricing: How to identify policies that genuinely complement an economy-wide carbon price report criticized the Quebec government’s electric vehicle (EV) purchase incentive as being a complementary policy that is too expensive. (For more on Canadian Green Tech’s initial read, click HERE). During the webinar Ragan further explained why such subsides are bad policy.
“Very often when you offer a subsidy and it doesn’t really matter what we’re talking about you end up paying somebody to do something but you end up paying them for doing something they would have done anyway,” he said, adding all this does is add costs because typically governments raise very distortionary taxes to fund such endeavours.
A better approach may be for the government to spend money on charging infrastructure rather than giving money to people who were going to spend it anyway, noted Ragan. But first a cost benefit analysis would have to be done.
The Ecofiscal Commission’s report is another in a long line of expert analyses informing governments on their options for climate policy implementation. What’s clear from its latest though is that there is still a big divide among economists as to the best way forward.
As Ragan noted in the opening of the webinar, “Some people say all you need is a well design carbon price and then you let the market work its magic and we’ll see emissions fall in a cost effective way. Other people say well you need the carbon price but you need lots of other things too and the more the better.”
And even though Supporting Carbon Pricing has laid out a framework for governments to follow as they attempt to adopt additional carbon mitigation policies, there isn’t yet consensus on the most viable and cost effective approach.