7. March 20 2014 ENV222 lecture outline.pdf

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University of Toronto St. George
School of Environment
Stephen Scharper

20) March 20 Pricing carbon Neuhoff, Karsten (2011). “Chapter Two: The role of a climate policy mix.” In Climate Policy After Copenhagen: The Role of Carbon Pricing. Cambridge: Cambridge University Press. pp. 19 – 55. ▯ Lecture outline ▯ 1. What is the solution ▯ The solution is to ensure that carbon dioxide is no longer emitted to the atmosphere at no cost. It is a means of making fossil fuels more expensive, in order to: . give users incentive for increased efficiency; eg, reduce the payback period for capital spending to improve efficiency . make price of renewable energies more attractive compared to fossil fuel energies, which has two benefits: 1) encourage users to switch from fossil to other fuels, eg hydro or new renewable wind or solar; 2) since price is competitive demand for renewables will increase, which encourages private investment in further development of new renewable technologies ▯ Note: the reading also discussed carbon content of products, eg cement which releases carbon while being manufactured (p. 435). The lecture, however, is focussed upon carbon content of different fuels (coal, oil, natural gas, nuclear, renewables). The reading presents carbon pricing as part of a package of climate policies, made up of a carbon price, policies to support technology development, regulation, and management of distributive impacts. The lecture does not really address the second and third, but does discuss the important issue of distributive impacts. ▯ ▯ To some extent, a carbon price might be imposed by market forces alone: . oil industry now does project planning based on assumption there will be a $40 tonne price on carbon . carbon-content labelling on products might reduce demand (depending on values and barriers to action on values) and so have similar effect ▯ However, it really has to be done by governments. They could use these different policy instruments. ▯ Remove existing subsidies for fossil fuels . Global Subsidies Initiative (GSI) and International Institute for Sustainable Development (IISD) (August, 2011). Policy Brief:AHigh-Impact Initiative for Rio + 20:A pledge to phase out fossil-fuel subsidies. Estimates global consumer subsidies (to keep price of gasoline and other fossil fuels low) to be $312 billion (US) in 2009; and subsidies to fossil fuel producers to be $100 billion. . many countries like Iran and Indonesia have traditionally subsidized their populations use of fossil fuel energy as a means of ensuring popular support, to stay in power; ▯1 . producing countries like Canada give subsidies to the oil and gas industry to contribute to economic growth and employment (and thereby help win the next election, stay in power). ▯ Use law to regulate carbon emissions . absolute cap eg, Nova Scotia: an absolute cap on emissions from Nova Scotia Power, requiring by law that they decline from 10.2 million tonnes (Mts) in 2009 to 4.5 Mts by 2030 ▯ . as a ratio to production eg,Alberta: law requires reduction in intensity of energy use, with $15 per tonne charge for non- compliance (emissions which exceed the intensity cap), revenues go into a technology development fund ▯ . with trading eg, EU Emissions Trading System; Quebec-California trading system which started 2013; in both cases, emission allowances are trading around $10 a tonne; the trading price of allowances sets the carbon price ▯ Use tax or surcharge to directly impose a price . on the fossil fuel when taken out of the ground . on the fossil fuel product when sold to user . on the user when combusts the fuel ▯ eg, British Columbia has put in place a carbon tax which took effect July 1, 2008, at the rate of $10 per tonne of carbon-dioxide equivalents, payable at the point of sale, and which then increased by $5 a year to its present level of $30 a tonne; the tax is revenue-neutral, meaning other taxes are reduced by an amount equivalent to the carbon tax revenues. - has brought in $3.7 billion revenues - recent study claims it has reduced fossil fuel consumption 19%, without adverse effect on BC economy - BC government has twice been re-elected since 2008; opposition to the tax has not been strong enough to defeat the government ▯ . see reading p. 432 re 7 European countries which have reduced emissions by means of carbon taxes; Sweden and Finland, highest taxes, greatest reductions ▯ As part of a larger policy of ecological tax reform The policy objective is to generate the same revenue to support state activities, but change incentives respecting environmental and social behaviour. Thus such things as payroll taxes are lowered to encourage employment, while fossil-fuel taxes are raised to encourage energy efficiency and fuel switching. The Liberal Party led by Stéphane Dion ran on a platform of ecological tax reform in 2008 and was defeated. ▯ ▯2 Policy advantages of carbon tax:on tax. . lower administrative costs . gives price certainty, motivate renewable technology development . applies to large and small, while cap-and-trade can only be applied to large sources . generates revenues which can be used for policy purposes (as does trading) ▯ But cap-and-trade has political benefits for governments: . avoids political resistance to new
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