an industry perspective on carbon emission pricing carbon pricing and environmental federalism...
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![Page 1: An industry perspective on carbon emission pricing Carbon Pricing and Environmental Federalism Conference Queen’s University, October 17-18, 2008 Rick](https://reader034.vdocuments.mx/reader034/viewer/2022051316/56649eb35503460f94bbb433/html5/thumbnails/1.jpg)
An industry perspective on carbon emission pricing
Carbon Pricing and Environmental Federalism Conference
Queen’s University, October 17-18, 2008
Rick Hyndman
Senior Policy Advisor, CAPP
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Canada’s GHG 2020 & 2050 Emission Objectives
2050 Target
2006 2020 Target
BEFORE AFTER
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P set directly
“CarbonTax”
“Cap &Trade”
Free Allocation to emitters
0
Acc
ess
to O
ffse
ts
No
Complex Issue, Confusing Labels
P set via Q
Freeallocation
100%
Access to Offsets
Setting policy price
directly or via Q
Yes
100%of target
AlbertaCap &Trade
Phase 1of WCI
Phase 3
of WCI
Warner Lieberman
RGGI
Cdn Federal cap & trade
US SO2
BC Carbon tax2008
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Confusing labels: carbon tax label is dead
Carbon TaxBorn 2008Died 2008
RIP
CarbonTax
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Complex issue: Emission pricing design IS rocket science
Image:Calabi-Yau.png, Wikipedia
Artistic depiction of String Theory’s Multiple Dimensions
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And yet ……
At its heart,emission pricing
isvery simple
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Emission pricing is taxation
CANADAUne/One
Tonne CO2e
GHG Policy Compliance Certificate 1En
viro
nm
ent
Can
ad
a
The $/tonne price is set DIRECTLY,
if the tax is levied in
Canadian $
The $/tonne price is set
INDIRECTLY,if the tax is
levied inGovt- issued
emission permits
Currency of the tax is either $ or an emission permit
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The P v. Q issue is: Do we set the policy price of CO2:
$/tonne
Time
Directly
Orderly, simple, clear and predictable way
Indirectly
Volatile, complex, costly and unpredictable way
or
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Setting the price indirectly via a permits market is separate from emission trading
Alberta cap & trade system has:
a directly set (default) price of CO2
AND
Emission trading among covered facilities and ability to use offsets for compliance
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Allocation
Facility targets: emissions taxed if above target, credits if below target
Free distribution of permits
Recycling of revenue
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Design First, Bundle Later
Break design into single policy elements
Emission pricing element: using price system to drive decentralized decisions
Income and wealth effects based on the incidence of pricing
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4 categories of emissions with different patterns of incidence of emission pricing
1. Upstream oil and gas production emissions (and other industries with resource rent) Prices are set internationally independent of Canadian
costs
Carbon costs on production emissions not covered by border adjustments are ultimately borne by resource owner through reduced resource rent
2. Trade-exposed industry with significant life-cycle emissions Requires border adjustment to allow incidence to flow to
consumers
3. Electricity Costs passed through to consumers, incidence varies
regionally with energy supply patterns
4. Other, end use consumption emissions Roughly common patterns of consumption across regions,
though heating energy is a question
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ALLOCATIONis about
INCIDENCE
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Competitivenessis an
incidence question
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Border adjustments can shift incidence to end users
-25
0
25
50
75
100
125
High Seas Import Domestic Export
$/
un
it
Price net of carbon cost Border adjustmentCarbon cost
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Without Border Adjustments, need to address incidence via allocation
Intensity targets for emission intensive, trade-exposed sectors
Might be possible in some sectors to accomplish via international performance benchmarks
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For other emission sources, recycling should address differences in regional and sectoral incidence
Key differences:
Electricity generation
Resource industries
Recycling methods:
Federal income tax reductions
Replacement of GST
Per capita grants
Won’tdo it
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Mixed federal – provincial policy
Provincial
Electricity
Resource industries
Energy intensive industry unless covered by border adjustments
Federal
Transportation
Broad energy use
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THE KEY POLICY & EMISSION PRICING ISSUE
$/tonne CO2
Emissions mT CO2e
$15
$100
8002020 BAU
2020 Emissions Objective
576 7212006 Actual
Uncertain emission cost curve= Choice of emissions & costs
Where the govt says it wants to be
What the public currently supports