Alex Wood Presentation - Designing Integration: Regional Governance on Climate Change in North America September 2010


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Alex Wood, SP's Senior Director, Policy and Markets

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Alex Wood Presentation - Designing Integration: Regional Governance on Climate Change in North America September 2010

  1. 1. 1<br />Designing Integration:<br />Regional Governance on Climate Change in North America<br />Design Issues for Linking Carbon Markets<br />Waterloo – Sept. 23/24, 2010<br />
  2. 2. MBIs: cap-and-trade vs. carbon tax <br />Rationale for MBIs/carbon pricing is as sound as ever:<br />“to argue for a carbon price is an argument in making markets work”<br />Rationale for carbon pricing is expanding into new areas: innovation policy, industrial (clean tech) policy, fiscal policy, etc.<br />Political debate is elsewhere: in US, moving away completely; in Canada, towards regulation<br />Debate on cap-and-trade vs. carbon tax is not yet settled<br />Simplicity of carbon tax is key sale point<br />2<br />
  3. 3. Linking/expanding markets<br />Again, basic rationale is sound. Wider the market, greater the liquidity, lower the cost<br />Key question to address is why that rationale comes up against political blockages around:<br />Economy-wide application of market instrument<br />Geographic expansion of market and wealth transfer<br />3<br />
  4. 4. Role of offsets<br />Rationale is sound, if environmental integrity of basic system can be addressed<br />CDM reform efforts<br />Political smell test around “hot air” has not been resolved (at least in Canada) and lack of consensus from environmental community doesn’t help<br />4<br />
  5. 5. 5<br />
  6. 6. Gains from cap-and-trade<br />Great untested hypothesis for Canada: we can come out winners of NA carbon market, with lowered carbon price<br />Operational gains from trade also potentially significant<br />Also important to consider pressure to equalize cost of carbon in absence of linking, particularly for Canada. This argument forms basic rationale for current Canadian government posture<br />Two counter-arguments presented by Fischer and Sawyer (C.D. Howe, 2010):<br />Large financial outflows to the US<br />In long-term, lower allowance prices stifles innovation and makes more expensive deeper emission cuts<br />OECD, taking note of US legislative gridlock, has just urged Canada to move unilaterally to avoid costly delay and investment uncertainty.<br />6<br />
  7. 7. Key assumption: Abatement cost curves<br />7<br />
  8. 8. Design elements of cap and trade<br />Devil is in the detail, which exactly why the details is where there is so much divergence.<br />Design details reflect national and sub-national interests<br />Key question is how to design a market that allows for national/regional interests to remain, while preserving efficiency of market mechanism<br />8<br />
  9. 9. Key unaddressed questions<br />Role of regional programs as laboratories of policy across borders<br />Key barriers in Canada around provincial jurisdiction over energy<br />Whether fundamental “reboot” on using carbon markets as driver of NA integration is required, and what other vehicle might be....clean energy? <br />9<br />