CALGARY, March 20, 2013 /CNW/ - Canadian policy-makers are faced with a
slew of options for reducing greenhouse gas emissions. A report
published today by The School of Public Policy, written by Jennifer
Winter and Trevor Tombe, finds that the most effective approach is to
impose a carbon tax on a firm's energy inputs.
"Policy-makers seeking an approach to lower greenhouse gas emissions,
with minimal impact on economic efficiency and productivity, should
look no further than the flat tax," the authors write. The authors
refer to the carbon tax as a flat tax because it is neutral across
industries and firms. Regardless of where they operate, or what they
produce, firms would face the same tax rate on their energy. Firms are
incentivized to lower their energy use, and hence emissions, in the
most efficient way.
The authors also evaluate the effectiveness of "intensity standards" or
limits on emission intensity and their impact on the economy.
Essentially, these standards place a ceiling on a firm's emissions per dollar of output. While these standards can take many forms, they all have something in
common: they place different costs on different firms. This distorts
firms' incentives, having the perverse effect of increasing the
economic cost of environmental improvements.
The authors find that a carbon tax on energy inputs is more efficient
than any form of standard. For example, in comparing a carbon tax to
sector-specific standards, the authors calculate that, to achieve the
same level of carbon reduction, the carbon costs associated with
sector-specific standards are $359 per tonne versus $70 per tonne with
Winter and Tombe concede that a flat tax on energy is a tough political
sell. However, if politicians are unwilling to pursue this route, there
is a second-best option that minimizes negative economic effects. This
involves a combination of setting intensity standards, allowing firms
to pay fines for surpassing these standards, and offering compensatory
measures to prevent overburdened firms from shutting down.
This approach "may well be the policy approach they can persuade the
public, and industry, to accept," the authors write.
The report can be found at www.policyschool.ucalgary.ca/publications
SOURCE: The School of Public Policy - University of Calgary
For further information: