Beruflich Dokumente
Kultur Dokumente
TABLE OF CONTENTS
I. INTRODUCTION..................................................3
II. THESIS STATEMENT............................................3
III. RATIONALE AND SUPPORTING EVIDENCE.............4
IV. DISCUSSION OF NORMATIVE APPROACH...............5
V. DISCUSSION OF POSITIVE APPROACH....................6
VI. ECONOMIC ANALYSIS........................................9
VII. IMPACT ON CANADAIN BUSINESSES..................12
VIII. CONCLUSION AND RECOMMENDATIONS...........14
REFERENCES.......................................................16
Page | 2
I. INTRODUCTION
For this next session of parliament; as Minister for Environment, my cabinet proposes
developing an environmental policy and legislation on a national cap and trade system which
involves a great deal of research, consultation, analysis and time depending on the
complexity of the issues and the impact it has on the ministrys stakeholders.
The federal government should assume more of its constitutional jurisdiction over the
environment and create a more integrated federal-provincial framework to deal with
environmental issues in an increasingly globalized world. Because the environment is such a
broad and diffuse issue area, many actors are involved in the policy process with varying
interests. Industry and the private sector provide employment and seek to maximize profits,
while environmental NGOs privilege environmental protection over economic growth
(Cederwall & Grebovic, 2011).
However, even with provincial opposition there are prospects for implementation.
Legally, it is possible for two regimes with overlapping rules to function, albeit with less
efficiency than one integrated system. Whether the two levels of government choose to
cooperate or simply create two overlapping and potentially redundant bureaucracies will
have large implications for the transaction costs and resources that go into meeting
Canadas GHG targets (Allan & Baylis, 2006).
After substantive economic analysis, a recommendation from my cabinet has been
identified in preparation for the next session of parliament, along with implementation, cost
options, and timelines - to introduce a Canadian cap and trade emissions system, spurring
reengagement with individual provinces to come on board and combat climate change.
Page | 3
Page | 4
also be invested in community benefits like job training, energy efficiency, and
renewable energy production, putting the nation at a competitive advantage in the
growing clean-energy economy.
Page | 6
So the first major external influences on policy-makers are voters. In our democracies,
voters do not decide most issues directly (Lemieux, 2004). In some instances, they vote for
representatives who reach decisions in parliamentary assemblies or committees (Lemieux,
2004). In other instances, they elect representatives who hire bureaucrats to make decisions
(Lemieux, 2004). The complexity of the system and the incentives of its policy-makers do not
necessarily make collective choices more representatives of the citizens preferences
(Lemieux, 2004).
Ultimately, citizens of this country will elect their representatives that best represent
their set of morals and social values. There are good reasons for this. In the first place, it
would be impractical, if not impossible, to have citizens vote directly on most policies
(Brander, 2006). Second, representatives can make use of expert opinion and presumably
make better decisions as a result, especially on technical matters (Brander, 2006). Lastly,
most citizens would be incapable of making an informed judgement without taking enormous
amounts of time and effort (Brander, 2006). Instead, we elect representatives whom we trust
to make good decisions on our behalf in accordance with general objectives that we elect
them to pursue (Brander, 2006).
The second major external influence on policy-makers is lobbying by special-interest
groups. While the influence of voting on policy is obvious and relatively uncontroversial, the
influence of interest groups is both subtle and a cause of concern (Brander, 2006). It is worth
distinguishing between two types of special interest groups: those concerned primarily with
their own economic self-interest, and those trying to promote particular moral or social
values; we will refer to these as economic interest groups and social interest groups
(Brander, 2006).
Sometimes a single interest group will undertake both kinds of activities, i.e. the
Western Climate Initiative (WCI) is one such group that is a non-profit corporation that
provides administrative and technical services to support the implementation of state and
provincial greenhouse gas emissions trading programs (Western Climate Initiative, 2007).
Basically, the WCI is a collaboration of independent jurisdictions working together to identify,
evaluate, and implement emissions trading policies to tackle climate change at a regional
level. (Western Climate Initiative, 2007).
The WCI began in February 2007 when the Governors of Arizona, California, New
Mexico, Oregon, and Washington signed an agreement directing their respective states to
Page | 7
develop a regional target for reducing greenhouse gas emissions, participate in a multi-state
registry to track and manage greenhouse gas emissions in the region, and develop a marketbased program to reach the target (Western Climate Initiative, 2007).
During 2007 and 2008, the Premiers of British Columbia, Manitoba, Ontario, and
Quebec, and the Governors of Montana and Utah joined the original five states in committing
to tackle climate change at a regional level. All 11 jurisdictions collaborated in the
development of the Design for the WCI Regional Program, which was released in July 2010,
lays the groundwork for a regional cap and trade program and other strategies to meet their
regional goals.(Western Climate Initiative, 2007).
So far, we have considered the two major external sources of pressure on policymakers: voters and special-interest group lobbying; these external pressures are important
because they affect the self-interest of politicians (Brander, 2006). Obviously, politicians will
be sensitive to voting pressures, and they will be sensitive to special-interest group lobbying
(Brander, 2006). In addition, however, policy-makers are subject to direct self-interest
(Brander, 2006). Decisions they make affect their own welfare directly, leading to conflicts of
interest, and at the very least, policy-makers can be expected to take advantage of the
perquisites of their position (Brander, 2006).
A combination of the above three forces ultimately shape every governments actions;
especially for the policy-making discussion on the environment for the government to
introduce a national cap and trade system. In practice, policy-makers will not rely on single
external forces, but on combinations of effective environmental policies. The decision of how
to combine cap and trade with other policy instruments or alternatives rests on economic
efficiency, effectiveness, and fairness to that particular industry being affected by the cap
and trade system.
Page | 8
The argument, in this case, is over what type of economic incentive is most preferred.
However, those policy analysts who are wary of the flexibility provided by economic
incentives prefer a more normative approach, which can provide the greatest certainty over
emissions and/or technologies in particular industry sectors (Washington State Department
of Ecology, 2008).
A cap and trade system, for example, will work best when (1) there is a known overall
goal (an emissions target) and (2) there exist significant cost differences among the
regulated community, so that it is important to provide an incentive for reducing emissions
while at the same time providing flexibility to the regulated community in how muchand by
what meansemissions are reduced (Washington State Department of Ecology, 2008).
Is there an economic incentive to cap and trade? It provides an incentive to industries
with flexibility over how much, and by what means, to reduce emissions (Washington State
Department of Ecology, 2008). It operates by placing a price on carbon-emitting activities,
and by using the market to transmit that price up-and-down the production-sales chain
(Washington State Department of Ecology, 2008).
The cap and trade system places a uniform price per ton of CO2 (or other GHG, if
included) (Washington State Department of Ecology, 2008). By placing the same price per
ton throughout the economy, these market-based systems (theoretically) result in efficient,
low-cost emissions reductions (Washington State Department of Ecology, 2008). This lowcost property results from the flexibility emitters have over how much they reduce emissions
and what technologies they choose to use; because the aggregate number of allowances is
fixed, however, overall environmental goals are met (Washington State Department of
Ecology, 2008).
Each emitter chooses to reduce emissions to the point where the cost of emitting
another unitthe price of an allowance that must be purchasedequals the cost of adopting
a lower-emitting technology or reducing output in order to reduce emissions further
(Washington State Department of Ecology, 2008).
After substantive economic analysis, a recommendation from my cabinet has been
identified in preparation for the next session of parliament, along with implementation, cost
options, and timelines - to introduce a Canadian cap and trade emissions system, spurring
reengagement with individual provinces to come on board and combat climate change.
Page | 9
1.) Implementation - Environment Canada and Foreign Affairs and International Trade
Canada (DFAIT) are the key implementation centres. Environment Canada will manage the
cap and trade system and lead Canada in domestic and international climate change
negotiations, requiring greater personnel and resources. The cap and trade emissions system
should use the National Roundtable on the Environment and the Economys comprehensive
planning reports as a design framework to achieve measurable GHG reductions while
ensuring economic growth (Cederwall & Grebovic, 2011).
2.) Cost Options - Cap and trade will reduce Canadas GHG emissions, portray a
positive image to the world, and provide Canada with a renewed voice in global climate
negotiations, but some financial costs at least in the short-term will be incurred. These costs
will be minimal in relation to Canadas GDP. DFAIT will advance Canadas international efforts
by providing operational support in negotiations, leading in international dispute resolution
where necessary, and communicating Canadian policies to foreign governments and
interlocutors abroad (Cederwall & Grebovic, 2011).
A cap and trade system is less politically onerous to achieve than a carbon tax given
widespread lingering opposition from our own federal government and from oil producing
provinces, may continue to oppose the policy. The system should be open to future
harmonization if the U.S. develops an effective cap and trade plan, but Canada must act now
if it is to meet its climate change targets (Cederwall & Grebovic, 2011).
Regional Canada-U.S. cross-border groupings between Canadian provinces and U.S.
states, most notably the WCI and the Conference of New England Governors and Canadian
Premiers, can work in conjunction with a national cap and trade approach by continuing to
advance cooperation, best practices, and policy innovation. Cap and trade, as a marketbased approach, is more economically-beneficial than command-and-control government
regulations for individual industries that do not put a price on carbon and allow emissions
trades (Cederwall & Grebovic, 2011).
3.) Timeline - Introduction of cap and trade system legislation by June of 2012 and
implementation one year later, with escalating carbon prices being phased in gradually to
allow industries to adapt (Cederwall & Grebovic, 2011).
It appears likely that from an economic analysis, at some point in the next coming
years; federal environment policy legislation must be passed that creates a national GHG cap
and trade system. Layering federal GHG legislation on top of existing provincial trading
Page | 10
programs, such as the WCI, and other regional-level policies and measures may have a
variety of implications for Canada as an early mover on cutting down its carbon emissions.
The architecture of the cap and trade system that my office is proposing for Parliament
to implement in 2012 would be fully compatible with WCI, thus facilitating future linking if
appropriate. The WCI recommendations provide the flexibility for Canada to demonstrate
best practice in the form of broad-as-practical coverage, 100% auctioning and avoidance of
offsets (or tight limits on their use). By implementing a simple and highly effective system
with these characteristics in 2012, Canada would set the standard by which other systems
proposed in North America including those of other WCI jurisdictions would be
measured. This would place Canada in a strong position to advocate for greater stringency
and environmental integrity in those systems (Bramley, 2009).
permits will end up being worth a lot because they will be in greater demand. The downside
of a lax cap is that it minimizes the environmental benefits (Horne, 2011).
The second factor is the number of offsets allowed. Offsets are projects that reduce
pollution in sectors of the economy not covered by a cap. An offset project costs money, so it
has a value, just like pollution permits. The potential advantage of offsets is that they can be
cheaper for businesses than reducing pollution or buying permits. The downside is that even
the best efforts to verify their legitimacy will accredit some offsets that will not effectively
reduce pollution (Horne, 2011).
The third factor in determining the cost of pollution permits is how governments decide
to allocate them: they can give them away free or auction them. If permits are given away,
the businesses given permits will have lower costs. If permits are auctioned, governments
collect the full value from businesses. In addition to providing governments with revenue,
auctioning simplifies the rules by eliminating any need to decide which businesses get
permits and which do not (Horne, 2011).
Many businesses question what cap and trade will do to their competitive advantage,
or to Canada, for that matter. For businesses providing products and services that help
reduce pollution, like a wind farm for example, cap and trade will create market opportunities
(Horne, 2011).
For businesses that have to buy permits, at least two other aspects of cap and trade
can help maintain or improve competitiveness. First, cap and trade systems typically include
multiple jurisdictions, so they provide a level playing field for all businesses in the system.
Second, governments have flexibility to decide how best to use any auction revenue they
collect, and there are plenty of ways money can be invested to improve the economy (Horne,
2011).
Canadas approach of using carbon tax revenue to reduce other taxes is an example
that should be used towards generating a revenue-neutral system to promote technological
and process innovations that reduce pollution down to or beyond required levels. The bottom
line is that a well-designed cap and trade system can be part of a climate change solution
that is good for the environment and good for the economy (businesses) nation-wide (Horne,
2011).
Page | 12
competitive advantage, or to Canada, for that matter. For businesses, providing products and
services that help reduce pollution, cap and trade system for these businesses will create a
thriving market opportunities.
As for some policy recommendations, a cap and trade system can be a cost-effective
means of controlling GHG emissions. However, because of the diversity of emission sources
and the variety of economic agents with some control over emissions, cap and trade cannot
be a universal remedy. Other types of policies and instruments will be needed to reduce
emissions from sources not easily included in the system, to provide incentives for a wide
range of economic agents to take actions that reduce emissions, and to address other
environmental or social goals that may conflict with GHG reductions (Washington State
Department of Ecology, 2008).
A national cap and trade system appears to be closer on the horizon, it will be
important for all provinces to participate in the debate about creating a national cap and
trade system design. Especially, for industries affected by future federal and current
provincial policy programs (including the current WCI mandate and other policy instruments)
are not put in an adverse position in the future when the cap and trade system is
implemented nation-wide.
REFERENCES
Allan, T., & Baylis, K. (2006, February). Who Owns Carbon? Property Rights Issues in a Market
for Green House Gasses. Retrieved November 19, 2011, from
http://econpapers.repec.org/article/agscafric/46380.htm
Bogard, M. (2011, May 23). Public Choice Theory. Retrieved Novemeber 27, 2011, from
Economics: Principles and Applications:
http://economicsprinciplesandapplications.blogspot.com/2011/05/public-choice-theory.html
Bramley, M. (2009, September). Key Questions For A Canadian Cap-And-Trade System.
Retrieved November 20, 2011, from The Pembina Institute: http://www.pembina.org/pub/2015
Page | 14
Page | 15
Page | 16