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Economy Lab

Different methods, tough choices in parties' GHG plans Add to ...

There are three elements of any greenhouse gas (GHG) policy which should matter to you. First, you need to know how many emissions reductions the policy will deliver.

Second, you should to ask whether the policy does the best job at minimizing costs to the economy as a whole.

Finally, you should care about how the particular policy will change the way you live your life because of changes in prices, lost or created jobs, and changes to your tax bill.

More related to this story

Talking about GHG policies without talking about the number of emissions reductions it delivers is like arguing in the abstract about whether a speed limit on the highway is a good idea. A 20km/hr speed limit will have vastly different effects than a 110km/hr limit. The numbers are important to the debate. You can't compare GHG platforms without looking at what you get out of them either. The scale of emissions reductions a policy delivers also tells you a lot about how the policy will change the economic decisions people make because a more stringent policy makes the rights to carbon emissions scarce and/or more expensive.

The emissions reductions pledged by each party are different, but they are all aggressive. The policies imposed to meet any of them will need to place significant restrictions on national GHG emissions. Economic modeling tells us that Canada's GHG goal of 17 per cent below 2005 emissions levels by 2020 will require us to implement all of the GHG emissions reduction opportunities in the country that cost less than $100/ton. Apply a more stringent target and you will have to look to more expensive emissions reductions. If you start picking and choosing among which low-cost reductions you implement with a regulatory approach, you will also have to take on some more expensive reductions to make up the shortfall.

Once you know the target, you should ask whether the country is getting a good deal on emissions reductions. If you want a good deal on your emissions reductions, you want a policy which puts a price on GHG emissions. This is unequivocal, unless you believe that governments can assess the costs of emissions reduction in every business and household in the country and enforce only the cheapest of those actions through regulation.

Under carbon pricing, GHG emissions become a business decision just like hiring labour or investing in capital. Most would agree that hiring decisions are best made by individual businesses, and that productivity would drop significantly if the government began telling businesses how many workers they were allowed to employ. The same is true of GHG emissions; if you want low-cost emissions reductions, carbon pricing is the way to go.

Perhaps most of all, you should ask how each policy will affect you. Most people focus on price changes for consumer goods, which will happen with any of the GHG policy approaches proposed for Canada. The size of price changes will depend on the stringency of the policy, the degree to which firms producing that product are forced to adopt expensive GHG mitigation technology, and the ease with which consumers can shift their consumption elsewhere. No substitutes mean that the producer can easily pass increased costs onto consumers.

There is no easy rule with respect to which approach, regulatory or market-based, is better for you. Ask any economist and they will tell you that regulation will generally lead to more expensive emissions reductions being implemented across the economy compared to a carbon pricing approach. However, the only way you can truly assess what a given policy means to you is to look at how you live, where you work, and how you pay taxes.

GHG policy of any kind will disadvantage some business models and advantage others. Some people will lose jobs, while new jobs will be created in other industries. Carbon pricing policies can raise a significant amount of money for the government, and that money will not be spent in ways which benefit everyone equally. A regulatory policy or an approach based on subsidies and tax credits can also cost the government significant amounts of revenue. The taxes or program cuts used to make up this revenue shortfall will not affect everyone equally either.

In this election, every federal party has proposed actions on GHG emissions which will impose significant costs on some companies, regions, and individuals while benefiting others. The wealth shifts involved will be in the billions of dollars. If you are going to let GHG policy influence your vote, you owe it to yourself to get engaged in the discussion and get beyond the easy sound bites.

Andrew Leach is an Assistant Professor at the Alberta School of Business. He blogs on energy, environment, and oilsands issues at http://www.andrewleach.ca and is on Twitter @andrew_leach

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