Canada’s Ecofiscal Commission finds that some—but not all—additional GHG policies can support carbon pricing in driving low-cost emissions reductions.
June 8, 2017
Canada’s Ecofiscal Commission today released a new and timely report, Supporting Carbon Pricing: How to identify policies that genuinely complement an economy-wide carbon price.
With the signing of the Pan-Canadian Framework on Clean Growth and Climate Change in December 2016, Canadian governments — both provincial and federal— are moving forward with non-pricing climate policies, to complement their carbon price. Some non-pricing policies make sense, and support carbon pricing by contributing toward low-cost GHG emissions reductions. Yet others can be expensive. How can governments identify genuinely complementary policies? And what is the right policy mix of pricing versus non-pricing policies?
Supporting Carbon Pricing helps governments answer these questions by providing a comprehensive framework for the design and evaluation of climate policies. Genuinely complementary policies are ones that:
- Have a clear rationale. The policy must do something carbon pricing can’t do on its own. It should fill gaps in carbon pricing policies (gap-fillers), boost the signal of the carbon price (signal-boosters), or generate significant co-benefits (benefit-expanders).
- Avoid negative interactions. When a policy affects the same emissions as carbon pricing, policy interactions can occur. Negative policy interactions can undermine policies’ effectiveness and increase costs, overall.
- Are well-designed. The policy should be designed to ensure stringency, appropriate coverage, flexibility, predictability and good governance.
- Reduce emissions. The policy must effectively reduce the emission of greenhouse gases (GHGs).
- Are cost-effective. The policy must reduce emissions at a reasonable cost (compared to benchmarks such as current and future carbon prices).
The full report and executive summary are available at ecofiscal.ca/complementary.
On December 9, 2016, eleven provinces and territories signed the Pan-Canadian Framework on Clean Growth and Climate Change. Most jurisdictions in Canada are now moving forward with carbon pricing.
- The Ecofiscal Commission has shown in previous work that carbon pricing is the most cost-effective way to reduce emissions, and has provided solutions for addressing competitiveness and household fairness in subsequent reports.
- The Pan-Canadian Framework on Clean Growth and Climate Change calls for complementary policies in a variety of sectors, including electricity, the built environment, transportation, industry, and agriculture.
- Canada’s Ecofiscal Commission is a trans-partisan initiative working to advance fiscal policy reform for the benefit of Canada’s economy and environment. The commission comprises eleven prominent economists from across Canada’s regions and 18 advisers including former political leaders and leaders from the business sector and civil society.
“Carbon pricing should do the lion’s share of the work, as it is the most cost-effective way to reduce greenhouse gas emissions. If and when other climate policies are required, they should also be cost-effective. Our research provides a framework to identify these complementary policies. Only those that do something the carbon price can’t do—and that are low-cost—should be implemented.”
Chris Ragan, Chair, Canada’s Ecofiscal Commission – Associate professor of economics at McGill University
“The Ecofiscal Commission report shows that some climate policies, though well-intentioned, are not sensible due to their high costs. In these cases, we’d be better off relying on carbon pricing to drive lowest cost emissions reductions. Good policy can combat climate change and strengthen our economy—but we need to do it carefully.”
Jim Dinning, Chair, Western Financial Group Former Treasurer of Alberta – Adviser, Canada’s Ecofiscal Commission
“The latest report from the Ecofiscal Commission shows governments how to design a smart package of policies including both carbon pricing and complementary policies. Low-cost, flexible policy that reduces GHG emissions and drives clean innovation makes sense for Canadian businesses.”
Annette Verschuren, Chair and CEO, NRStor Inc. – Adviser, Canada’s Ecofiscal Commission
Spokespersons: Chris Ragan, Chair of Ecofiscal, is available for interviews in English, including in person in Ottawa on June 8th. Commissioner France St-Hilaire is available for French and English interviews in Montreal on June 8th.