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Article Excerpt
Abstracts
A regional CGE model of Canada is developed to estimate the effect on aggregate welfare and the welfare of individual provinces of achieving Canada's Kyoto target using alternative climate policies. We consider a domestic carbon tax, international permit trading, as well as the Liberal federal government's 2005 Project Green. Project Green (PG) includes a mix of tradable permits, covenants, sectoral exemptions as well as a heavy reliance on voluntary and targeted measures. The plan is similar in many respects to the Climate Change Plan (CCP) released in 2002.
Our regional CGE model of Canada relates greenhouse gas emissions to intermediate and final use of fuels as well as fugitive emissions related to oil and gas extraction. Interprovincial and international trade flows and endogenous labour supply decisions are also included. We include in the model features that allow us to represent key policy elements of Project Green, like the expansion of renewable electricity capacity.
Our findings indicate that Project Green will have a limited effect in terms of domestic emissions reductions. Moreover, an international permit scheme achieves a greater reduction in domestic emissions with similar aggregate welfare effects as achieved under Project Green. We would argue that the provincial distribution of burdens is at least as fair under the international permit scheme as under Project Green.
Resumes
>. Un modele regional CGE du Canada est elabore afin d'evaluer l'effet sur le bien-etre global et le bien-etre des provinces individuelles de l'atteinte des cibles de Kyoto pour le Canada en utilisant des politiques concernant le climat alternatives. Nous avons pris en consideration une taxe domestique sur le carbone, le commerce international de permis, ainsi que le Projet vert du gouvernement federal liberal de 2005 (PV). Le Projet vert inclut une combinaison d'un commerce de permis, des ententes, des exemptions sectorielles ainsi qu'une emphase importante sur des mesures volontaristes et ciblees. Le plan possede plusieurs similarites avec le Plan pour le changement climatique rendu public en 2002.
Notre modele regional CGE du Canada fait le lien entre les emissions de gaz a effet de serre aux usages intermediaires et finaux des fuels ainsi qu'aux emissions fugitives reliees a l'extraction du gaz naturel et le petrole. Les flux commerciaux interprovinciaux et internationaux et des decisions endogenes concernant l'offre de main d'oeuvre sont egalement pris en consideration. Nous avons inclus dans le modele des caracteristiques qui nous a permis de representer des composantes cle de la politique du Projet vert, telle que l'expansion de la capacite de production de l'electricite renouvelable.
Nos resultats suggerent que le Projet vert aurait eu un effet limite en termes de reduction des emissions domestiques. De plus, un plan international concernant des permis pourrait atteindre une plus grande reduction dans les emissions domestiques avec des effets globaux en termes de bien-etre semblables a ceux qui auraient pu etre atteintes sous le Projet vert. Notre raisonnement suggere que la repartition des couts entre les provinces est au moins aussi equitable sous un plan international de permis que sous le Projet vert.
Introduction
With the signing of the Kyoto Protocol in 1997, Canada agreed to reduce its greenhouse gas (GHG) emissions to 6 % below 1990 levels. Since then, a number of climate change plans have been produced by the federal government. Action Plan 2000 was followed by the federal government's Climate Change Plan (CCP) in 2002 and then by Project Green (PG) in 2005. (1) Although not identical, the key elements of the federal government's strategy for tackling GHG emissions are similar across plans: a system of tradeable domestic permits, a heavy reliance on voluntary actions, targeted measures and subsidies, limited use of the polluter-pays principle and only a limited role for international permit purchases.
One of the motivating factors behind Project Green (and the CCP) was to ensure that the burden of compliance was spread fairly across the provinces and yet there has been almost no work done to address the issue of how the aggregate costs of this federal plan (or any other) are distributed across provinces. And while the federal approach relies on a mix of policy instruments, much of the attention in the literature has focused on single instrument approaches, like international permit trading or a carbon tax. This paper helps to address these gaps and, in doing so, makes two contributions to the literature. First, we develop a regional, computable general equilibrium (CGE) model of Canada to estimate not only the aggregate welfare effects but also the impact for individual provinces of achieving Canada's Kyoto target using different policy approaches. Second, the model includes features that allow us to represent some of the policy elements that have featured prominently in the federal government's Project Green and earlier climate change plans. In particular, the CGE model allows for the emergence of a new non-fossil electricity sector and new carbon sequestration and sinks activities in response to endogenously-determined federal subsidies and a domestic permit trading scheme with sectoral exemptions and price caps. We also account explicitly for the additional federal costs associated with policy measures that involve direct federal outlays.
A number of studies have looked at the effects of alternative policies for climate change in Canada. The Canada-wide effects of achieving the Kyoto target using a single market based instrument--a carbon permit trading scheme--is estimated using a national CGE model in Ab Iorwerth et al (2000), Wigle (2001) and Dissou et al (2002). These studies find that Kyoto compliance leads to a 1 % to 2 % reduction in real GDP from business-as-usual levels. Dissou (2005) uses a CGE model to compare the effects for Canada of achieving Kyoto compliance using a carbon tax with the alternative of a performance standard. He finds that the performance standard and the permit system (where revenues are used to lower tax rates on factor income) give rise to similar negative effects for real GDP, roughly -0.36 % in both cases. The -0.31% reduction in welfare with the performance standard is, however, significantly larger than the -0.12 % reduction in welfare that occurs with the permit system.
With a focus on national welfare effects or other aspects of climate change policies, these studies are unable to address the issue of how aggregate costs are distributed across provinces. Those studies that do focus on the provincial implications of Kyoto compliance are based on breaking out the results of a national model using various proportional allocation rules. For example, provinces' historical shares of national GDP are calculated for each sector. After the climate change policy is introduced, the new national GDP is allocated according to these shares. This is the general approach used in Ab Iorwerth et al (2000) and in a number of studies that focus on the 2002 Climate Change Plan. (2) An important drawback of this approach is that it ignores the influence of the different input and output patterns of a given sector among provinces as well as the transmission of shocks between provinces through interprovincial trade.
Most studies consider a single policy instrument rather than a mix of policies such as that proposed in Project Green or the CCP for achieving GHG emissions reductions. We are aware of only one study that examines Project Green's particular mix of policies. Jaccard et al (2006) uses the CIMS model to estimate the effects of Project Green policies on domestic emissions reductions in the short and long runs. CIMS is a "hybrid" model based on very detailed knowledge of the costs and characteristics of available energy technologies. Using their model combined with some assumptions about federal funding levels for climate initiatives and about policy effectiveness, Jaccard et al (2006) compares the simulated emissions reductions for each PG component, and in aggregate, to evaluate the plan's effectiveness. Their results suggest that PG would at best result in emissions reductions of about 175 Mt (with about half of the reductions taking place in Canada) by 2010. Projecting PG policies out to 2040, the authors estimate that the emissions reductions, while below projected business-as-usual levels, will be well in excess of Canada's Kyoto commitment.
While Jaccard et al (2006) focus on aggregate GHG emissions and the costs to the federal government (and taxpayers) of sustaining PG initiatives in the longer...
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