How does carbon pricing compare to other ways of reducing emissions?

All other policy approaches that reduce GHG emissions will cost more than carbon pricing

  • Regulations that require specific outcomes or technologies in particular sectors are less flexible, and thus have higher costs.
  • Ecofiscal Commission research estimated that Canada’s GDP would be up to 3.8% higher by 2020 if we relied on carbon pricing starting in 2015 instead of inflexible regulations to meet emissions targets.
  • Subsidies also cost more than carbon pricing
    • Subsidies to clean technologies require prioritizing specific technologies (i.e., “picking winners”).
    • They are often paid to businesses or individuals who would have adopted the clean technology anyway, without a subsidy or with a smaller subsidy.
    • Ecofiscal research found that Quebec’s electric vehicle subsidies cost around $400 per tonne of GHG emission reduced. This is more than 10 to 20 times the cost of existing carbon prices in Canada.
  • Carbon pricing does not require governments and businesses to determine where in the economy or the country the lowest-cost opportunities for emissions reductions exist.
  • The flexibility of carbon pricing also creates a powerful incentive for clean technology innovation, and there are economic advantages to adopting these technologies earlier rather than later.

Doing nothing to reduce GHG emissions is also costly

The overall economic impacts of carbon pricing are small

  • The impacts of carbon pricing for economic growth are and will be small.
  • Even with a carbon price rising to $100 per tonne, Canada’s Ecofiscal Commission estimates that GDP growth would still be strong and positive, though slightly lower.
  • At most, carbon pricing would reduce growth rates by 0.1%, and if revenues were used to cut income taxes (as provinces have discretion to do, under the Pan-Canadian Framework), the impacts on growth would be even smaller (see Figure 6, below, from our report Choose Wisely).

The overall economic impacts of carbon pricing are small

 

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