EnviroEconomics.ca

Ok, so cap and trade with the US just got really interesting:

Canada to seek climate deal with Obama

Here

There was talk of this post election, including morphing the current intensity based system (in the Regularly Framework) to something with a hard or binding cap before 2015. Linking a national cap and trade program to the US is likely a step in the right direction since with the US involvement, competitiveness issues largely fall away (if we all have the same carbon price there are not cost differentials in product markets). This issue has been a major stumbling block to moving forward and resolving it will help. But, new excuses will likely arise that will lead to more inaction, notably our current economic and financial poverty, and what about China and India? But still, this seems to be a good omen from Canadian Climate Policy.

And most US proposals bring under the cap and trade program emissions from buildings, transportation and other manufacturing, which is something Canadian policy has not done (i.e. the Regulatory Framework covers about 50% of Canada’s emissions).

But I think the more important question is can we assume linking cap and trade systems is always good? I can think of a number of reason why linking initially with the US could be problematic:

Policy sovereignty. For anyone who has reviewed the WCI design document knows, once you sign on, you have to adopt what others have developed. And in the case of say Manitoba with 3 MT of reductions and California with 300 MT, whose interests do you think matter? This has been the case with WCI and it could be the case with Canada and the US.

Governance. With the provinces forging ahead, this sudden resurgence from the feds can’t make the Canadian WCI partners too happy. And with multiple trading systems emerging, it could be a real nightmare for large emitters.

More distributive impacts. While economic theory says linking is good since it lowers overall compliance costs, the incidence of trading is not uniform between buyers and sellers. Simply, linking permit trade to a larger market will change domestic permit prices, and if you are a buyer or seller, this matters. So, some may be better off and some worse.

Volatility. A larger market with voracious (and ahem, unregulated) traders will drive price volatility, which results in uncertain permit prices and inefficient outcomes. Something industry hates.

So, linking can be good but it can be bad, so one needs to proceed with caution. In other words, when you hitch yourself to star, be prepared for a wild ride.

Here is a nice tight overview of what transpired this week with the NRTEE release. A surprising shot of clarity from an obscure source in Edmonton:

Sadly, ideology and partisan bluster continues to trump meaningful action on climate change based on sound advice—even when it’s advice the Conservatives asked for.

While we really can’t expect much from politicians in the short term, the NRTEE report has done an important service for the climate policy debate…refocused the national debate from one of questioning affordability (what I call Globe and Mail climate policy) to one also focused on the risks of inaction — both economic and environmental.

And speaking of risk, no news service highlighted the benefits of reduced air pollutants with climate policy. These are real and local and well NRTEE did not have enough time or space to explore these. But, check out the report, the reductions in air pollutants are large and so too then are the associated health benefits- which occur immediately and within Canada.

So by continuing to oppose efficient policies, politicians are not just thumbing their nose at getting things done cheaply, they are also thumbing their nose at clean air and oh yes, that little thing called climate stability.