Pricing Carbon
Alexander Wood
Senior Director, Policy and Markets
awood@sustainableprosperity.ca
Twitter: @ALEXatSP
Master 2
Making markets work for the environment 2
Outline
• Why price carbon?
• Case studies of carbon pricing:
• British...
What is an externality?
Marginal Social Cost
Externality
Marginal Private Costs
Master 2
Making markets work for the environment 4
Welfare loss of an externality
Background: Costs of Climate Change
• Climate change will have high costs
– $5 billion/year by 2020
– Could be as high as ...
Master 2
Making markets work for the environment 6
Social Costs of Carbon
• Socially optimal price of Carbon
– meant to be...
Estimates of social cost of carbon
Master 2
Making markets work for the environment 8
Market Based Instruments for
Climate Change
Two main instruments:
Cap a...
Carbon pricing across the world
Case Study: BC Carbon Tax
• Introduced July 1 , 2008, it was North America’s first
carbon tax
• Started at $10tC, designed...
Master 2
Making markets work for the environment 11
Case Study: BC Carbon Tax
Politically unpopular, future remains uncert...
BC Carbon Tax
Master 2
Making markets work for the environment 13
European Emissions Trading System
(ETS)
• ETS is a EU-wide cap-and-tra...
European environmental taxation:
economic impacts
European environmental taxation:
environmental effects
Master 2
Making markets work for the environment 16
Practical lessons on carbon pricing
• Recycling of pricing scheme reve...
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Carbon pricing - Citizens climate lobby presentation Alex Wood Sustainable Prosperity

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Slides from Alex Wood's (Sustainable Prosperity, Ottawa) presentation at the Sept 18, 2013 Citizens Climate Lobby - Ottawa event in Westboro (Can we price carbon and win - for the Economy and the environment).

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Carbon pricing - Citizens climate lobby presentation Alex Wood Sustainable Prosperity

  1. 1. Pricing Carbon Alexander Wood Senior Director, Policy and Markets awood@sustainableprosperity.ca Twitter: @ALEXatSP
  2. 2. Master 2 Making markets work for the environment 2 Outline • Why price carbon? • Case studies of carbon pricing: • British Columbia • Europe • California-Quebec
  3. 3. What is an externality? Marginal Social Cost Externality Marginal Private Costs
  4. 4. Master 2 Making markets work for the environment 4 Welfare loss of an externality
  5. 5. Background: Costs of Climate Change • Climate change will have high costs – $5 billion/year by 2020 – Could be as high as $43 billion/ year by 2050 (NRTEE) • Distributional impacts of climate change: who is causing it and where are the impacts felt ? – Unfortunately, it’s often the people who contribute the least who have to pay the most (i.e. Northern communities, low income communities etc.)
  6. 6. Master 2 Making markets work for the environment 6 Social Costs of Carbon • Socially optimal price of Carbon – meant to be a comprehensive estimate of climate change damages and often includes costs such as changes in net agricultural productivity, human health, and property damages from increased flood risk • Social cost of carbon: the damage on society that comes from emitting one more tonne of carbon dioxide into the atmosphere – The amount of what the social cost of carbon should be set at is debated • Government of Canada uses a rate of $25/tC • US government recently updated their rate from $23.80/tC to $38
  7. 7. Estimates of social cost of carbon
  8. 8. Master 2 Making markets work for the environment 8 Market Based Instruments for Climate Change Two main instruments: Cap and trade • sets a maximum level of pollution, a cap, and distributes emissions permits among firms that produce emissions Carbon tax • imposes a tax on each unit of greenhouse gas emissions and gives firms and/or households an incentive to reduce pollution whenever doing so would cost less than paying the tax
  9. 9. Carbon pricing across the world
  10. 10. Case Study: BC Carbon Tax • Introduced July 1 , 2008, it was North America’s first carbon tax • Started at $10tC, designed to rise to $30tC in 2012 (current rate) • Applies to almost all fossil fuel use in the province, including gasoline, diesel, propane, natural gas, and coal • Covers 77% of the province’s GHG emissions from residential, commercial and industrial sources • Tax designed to be “revenue neutral”; all revenues used to reduce other taxes through tax cuts and tax relief to low income populations – No overall increase in taxation
  11. 11. Master 2 Making markets work for the environment 11 Case Study: BC Carbon Tax Politically unpopular, future remains uncertain Since the tax was introduced: • BC’s per capita consumption of fuels declined by 17.4% (increased by 1.4% in RoC) • BC’s emissions have declined by 10% (1.1% in RoC) • BC’s economy has kept pace with the rest of Canada’s
  12. 12. BC Carbon Tax
  13. 13. Master 2 Making markets work for the environment 13 European Emissions Trading System (ETS) • ETS is a EU-wide cap-and-trade system targeting GHG emissions from electricity sector • A clear example of political commitment to addressing GHGs at economy-wide level, but a poor model for implementation • Plagued by problems with allocation of allowances, complicated by economic crisis • Has underperformed and needs reform
  14. 14. European environmental taxation: economic impacts
  15. 15. European environmental taxation: environmental effects
  16. 16. Master 2 Making markets work for the environment 16 Practical lessons on carbon pricing • Recycling of pricing scheme revenues is what determines its economic (and political) impacts • Price level matters, “forward” price level matters more • As a matter of political strategy, act early
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