6 Carbon Pricing Myths — and How to Overcome Them Dale Beugin, Executive Director, Canada’s Ecofiscal Commission October 14, 2018

Myth #1: Carbon pricing doesn’t work

There’s a lot of evidence that prices affect behaviour

Carbon pricing has worked in British Columbia Had the BC Carbon tax NOT been implemented: GHG emissions would be 5-15% higher (Murray & Rivers, 2015) Per-capita gasoline consumption would be 7-17% higher (Rivers & Schaufele, 2012) Vehicles would be 4% less efficient on average (Antweiler & Gulati, 2016)

Carbon pricing has worked in Sweden

The signal gets stronger over time Changes in behaviour Changes in investment Changes in innovation Short-term Medium-term Long-term

Modelling suggests carbon pricing will work in Canada

Myth #2: Carbon pricing costs too much

Command-and-control regulations Carbon pricing costs less than other policy options Carbon Pricing Command-and-control regulations Subsidies Flexible? Yes Sometimes No Technology-neutral? Generate revenue? Drive clean innovation? Avoid free-ridership problems?

Market-based instruments have a history of success Eastern U.S. air pollutant (NOx) trading: Deep reductions at 40-58% lower costs than command- and-control regulations Sources: Farrell (2000); Krupnick et al. (2005); Johnson and Pekelny (1996).

Is 3.7% of GDP a big difference? One practical way to address this problem is to move forward with provincial policies. A few main reasons 

A $100/tonne carbon price will have small economic costs

Myth #3: Carbon pricing will undermine our competitiveness

Competitiveness pressures are a legitimate concern Trump Leakage

But: only some of the economy is vulnerable

Output-based allocations “Output-based carbon pricing” Policy design can address competitiveness concerns Carbon price Incentives to reduce emissions Incentives for low-carbon innovation + Incentives to keep production and investment inside province Ideally: Targeted, Temporary, and Transparent Output-based allocations = “Output-based carbon pricing” Incentives to reduce GHG emissions by improving performance, not by reducing production 16

Alberta’s carbon price: OBA “rebates” to large final emitters

Myth #4: Carbon pricing is regressive

Fair questions about fairness Carbon costs as a share of income at $30 / tonne (Before revenue recycling, free allocations, behavioural & technological change) Alberta Nova Scotia Manitoba Ontario

Recycling revenue to households can solve this problem…and fully offset carbon costs for households Bottom 20% Bottom 40%

Alberta’s carbon price: cash rebates to ~ 2/3 of households

Myth #5: Revenue recycling undermines the price signal

Emitters can avoid the carbon price AND benefit from revenue recycling GHGs before policy GHGs GHGs after policy Avoided GHGs = savings $ Carbon Dividend Family #1 GHGs before policy GHGs GHGs after policy $ Family #2 Carbon Dividend

Myth #6: Carbon pricing is a “job-killer”

Evidence suggests carbon pricing doesn’t much affect net jobs Over time, more jobs in low-carbon industries Offsets job losses in carbon-intensive industries US modelling (Hafstead et al., 2018): $40 carbon tax with lump-sum rebates reduces total jobs by 0.3% Job losses far smaller if revenues used to cut labour taxes BC modelling (Yamazaki, 2017): Average 0.7% annual increase in employment from 2007-2013

To conclude…

Carbon pricing works. Incentives matter Carbon pricing is lowest-cost approach to reducing GHG emissions Carbon pricing can—and should—be designed to protect competitiveness Carbon pricing can—and should—be designed to be fair Smart revenue recycling complements carbon pricing Carbon pricing can support a growing, prosperous economy

Dale Beugin | @dalebeugin| www.ecofiscal.ca Thank you Dale Beugin | @dalebeugin| www.ecofiscal.ca