“…If both Canada and the United States are going to implement federal cap-and-trade programs — and it seems they will — then it makes sense to co-ordinate them from the beginning. That reduces the possibility that companies will try to manipulate the system by moving operations from one side of the border to the other. It would also be less disruptive for companies that do business in both countries…”
“…Given a choice between a cap-and-trade system and a tax-shift, economists tend to prefer a tax-shift. It’s more cost-effective and, arguably, harder to mess up. But most politicians are leery of tax-shifting. Cap-and-trade systems don’t scare taxpayers…”
President-elect Barack Obama said recently that his government’s approach to climate change will “start with a federal cap-and-trade system.”
In the speech from the throne, Prime Minister Stephen Harper vowed to implement “a North America-wide cap-and-trade system for greenhouse gases.”
The Conservatives have been stressing the “North America” element since Mr. Obama was elected. The U.S. election seems to have finally given Mr. Harper some direction when it comes to climate change. It also provides him an opportunity to be on the same team as Mr. Obama, who is even more wildly popular among Canadians than among Americans.
A cap-and-trade scheme sets a hard limit on greenhouse-gas emissions, either within an industry or across several industries. Companies that find ways to reduce their emissions can sell their unused allowances on the open market. This creates a financial incentive to innovate and conserve. Over time, the limit gets lower, reducing overall emissions.
Given a choice between a cap-and-trade system and a tax-shift, economists tend to prefer a tax-shift. It’s more cost-effective and, arguably, harder to mess up. But most politicians are leery of tax-shifting. Cap-and-trade systems don’t scare taxpayers.
And many businesses have been clamouring for governments to stop dithering and establish a cap-and-trade plan. They know it’s coming eventually, so the sooner they know the rules, the sooner they can position their companies. A good cap-and-trade system might even help the most nimble companies ride out a recession.
If both Canada and the United States are going to implement federal cap-and-trade programs — and it seems they will — then it makes sense to co-ordinate them from the beginning. That reduces the possibility that companies will try to manipulate the system by moving operations from one side of the border to the other. It would also be less disruptive for companies that do business in both countries.
It’s also important to get it right in the beginning. A poorly designed cap-and-trade system could poison public opinion against the concept; it might even poison public opinion against all environmental policies. In Canada, we have already seen how one rejected tax-shifting plan has discouraged politicians from developing the idea further.
The North American cap-and-trade system can benefit from the experience of similar programs, such as the one in the Europe. It must be strict enough to make an environmental difference. It must be scientifically sound, as well as politically palatable. One question both countries will have to answer is whether it should apply exclusively to carbon dioxide, or to other greenhouse gases as well, such as methane.
It must also be cost-effective and user-friendly, so that companies can make informed decisions.
It won’t be easy to design such a system. And even the best cap-and-trade plan won’t be sufficient to the task, not without other policies to encourage innovation and conservation. But it will be a start, at last.
”…One question both countries will have to answer is whether it should apply exclusively to carbon dioxide, or to other greenhouse gases as well, such as methane…”
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