Don’t link emissions trading with U.S.: C.D. Howe

TORONTO: Canada should develop its own greenhouse gas (GHG) emissions trading system, while limiting the risks of getting too far out of step with the United States, according to a study by the C.D. Howe Institute.

Economists Dave Sawyer and Carolyn Fischer suggest that a policy of “go it alone,” with prices on emissions that are similar to those of the US—based on the expectation that a US policy eventually will be in place—would be a low-risk strategy for Canada.

The report suggests Canada has more to gain, or to lose, with a policy of following the US lead on emissions trading.

Faster-growing emissions in Canada, fewer low-cost opportunities to reduce emissions in the electricity sector and the high costs of emissions reductions in the oil and gas sector are all factors that will raise Canada’s emmissions abatement costs.

The report’s authors say importing permits from the US would equalize relative emissions permit prices and lower the economic costs of emissions reductions in Canada, but at the cost of large financial outflows to the US.

Linking with Canada would have little impact on the US, but Canada-US emissions permit trading would lower Canadian permit prices, thus lessening the incentives to invest in abatement technologies.

The report claims an alternative policy would be to create a peg to the US emissions permit price, which would keep the revenues at home to be invested in technological innovation and other emissions-reducing activities.

To wait for the US to legislate emissions policies would mean delay for Canada, say the authors, without any guarantee that the eventual US approach would include linkages with Canada’s system.

Click here to read Better Together? The Implications of Linking Canada – US Greenhouse Gas Policies