Canada should adopt a phased-in approach to
climate harmonization policy with the U.S. to avoid delay in
emissions reductions and maintain economic
competitiveness. 

This measured approach would establish a ‘price collar’ that
limits carbon price differentials between Canada and the U.S. and
takes other national measures, says a new report by the National
Round Table on the Environment and the Economy (NRTEE).

Such a ‘made-in-Canada’ policy would allow Canada to
achieve significant greenhouse gas reductions over the next 10
years even in the face of uncertain U.S. policy, address
competitiveness concerns for industry, and pave the way towards
greater harmonization later as American policy direction emerges,
says the report, href=”http://www.climateprosperity.ca/eng/studies/canada-us/report/canada-us-report-eng.pdf”
target=”_blank”>Parallel Paths: Canada-U.S. Climate Policy
Choices.

This is the third report in the NRTEE’s Climate
Prosperity series examining the economic risks and
opportunities of climate change for Canada.  It contains
extensive new economic modelling and analysis assessing whether
Canada should lead, lag, or harmonize policy approaches with the
United States and the consequences of doing so. 

It shows that the current policy of harmonizing greenhouse
gas reduction targets with the United States requires a higher
carbon price in Canada to achieve those targets. 
Alternatively, harmonizing with the U.S. on carbon prices alone,
rather than on targets, means Canada’s GHG target of cutting
emissions to 17% below 2005 levels by 2020 would not be
met.

Calling Canada’s pledge to harmonize climate policy with
the U.S. “a sensible and realistic approach”, the NRTEE report
suggests that a measured, Transitional Policy Option would build on
current government regulatory approaches - such as the adoption of
new vehicle emissions standards that mirror the U.S. - so as to
both lower future costs of carbon abatement and reduce
competitiveness risks of moving ahead in the face of continued U.S.
policy uncertainty. 

It would ensure we continue to make real progress on our
own emission reduction target for 2020, only 10 years away. 
“The Transitional Policy Option brings about real carbon abatement
and emission reductions in Canada whether the U.S. implements
equivalent policy or not”, states the report.

The Transitional Policy Option contains the following four
elements:

1. Contingent Carbon Pricing
- to establish a price collar that limits the Canadian carbon price
to no more than $30.00/tonne CO₂e higher than the price
in the U.S.;

2. A National Cap-and-Trade
System - with auctioning of permits and revenue
recycling to cap emissions and address regional and sectoral
concerns.

3. Limited International Permits and
Domestic Offsets - to keep domestic carbon prices
lower for Canadian firms;

4. Technology Fund - to
stimulate investment in needed emission reductions
technologies.

Uncertainty about American climate policy direction means
Canada may need to consider its own parallel path to harmonization
aimed at meeting Canadian environmental goals at least economic
cost.  “We need to understand how we can meet our
environmental responsibilities as a sovereign state and a global
actor fully comprehending the unique economic ties we enjoy on this
continent”, stated Bob Page, NRTEE Chair.  “We are looking
towards conformity in purpose, not uniformity in
detail.”

Parallel
Pathsclass=”googqs-tidbit1”>illustrates policy options Canada can
undertake to advance our environmental
objectives while ensuring continued economic growth.  It
positions us now to harmonize along Canadian interests when U.S.
policy direction is finalized later.  It walks a middle line
between harmonizing on carbon targets and carbon prices, balancing
competitiveness concerns with environmental obligations.

“Harmonization, where possible and when
feasible, make sense for Canada.  But in the face of
persistent U.S. uncertainty as to its own climate policy future,
Canada will need to look to its own options, in the right way, at
the right time.” David McLaughlin, NRTEE President and
CEO.

The NRTEE Transitional Policy Option builds on and
reinforces the government’s current regulatory policy approach to
harmonizing climate policy targets and actions with those of the
United States by showing how a national carbon pricing approach can
be integrated. 

“No single climate policy option is risk free;
realistically, each entails some costs”, states the report. 
“But, if Canada desires to achieve its stated environmental goals
of GHG emission reductions within a certain period, we will need to
consider additional steps now, independent of U.S. actions and
policy uncertainty.” 

The carbon price collar would not exceed $30 more than the
price in the U.S. so as to maintain economic competitiveness for
energy-intensive, trade-exposed industrial sectors, yet still
achieve significant emissions reductions. For the economy, this
means average annual GDP growth (measured over 2005-2020), would be
two-per-cent, one-tenth of a percentage point below what it would
be without a policy.

For the environment, the TPO moves us further towards
meeting our 2020 targets, achieving cuts of three per cent below
2005 levels at a minimum, compared to emissions being at 10 per
cent above 2005 levels in 2020 without such a policy.

The report highlights the importance of low-carbon
technology investment to realize future emission reductions. 
It proposes creating a new Canadian Low-Carbon Technology Fund
financed through the compliance investments of carbon-polluting
firms, which could reach between $500 million and $2 billion in
2020 depending upon the Canadian carbon price and corresponding
U.S. policy. 

Recycling revenue back to industrial sectors, firms, and
provinces would help ensure regional equity and fairness while
targeting low-carbon technology development and deployment where it
is needed most. 

Full copies of the report available on-line at href=”http://www.climateprosperity.ca/parallel-paths”
target=”_blank”>www.climateprosperity.ca/parallel-paths