Chapter 6: Optimal Climate Change Tax Policy for Small Open Economies
Arthur J. Cockfield* 1 1. INTRODUCTION What are the best climate change tax policies for governments with relatively small open economies such as the Canadian one? This chapter assesses recent Canadian government climate change tax policy initiatives, discusses the merits of carbon taxes versus cap-and-trade solutions and then considers the constraints imposed on optimal climate change (or global warming) tax policy by increasing regional and global economic interdependence. The perhaps obvious conclusion is that governments with small open economies should seek collective action solutions to confront climate change challenges: the suggested approach is to develop consensus surrounding the imposition of a global carbon tax with, at least initially, a low rate. Yet Canada and certain other countries resist the adoption of a carbon tax, and probably serve as a barrier to effective international efforts to curtail global warming emissions. Because perceived national welfare concerns (for example, the need to exploit carbon-based natural resources) continue to trump international welfare concerns, a comprehensive global environmental tax policy solution appears unlikely in the near term. The analysis also highlights the need to continue to scrutinize international tax policy developments on a regional – and not global – basis, despite the ill fit between these regional developments and their ability to address global environmental concerns. International reform efforts need to address different national/regional cap-and-trade approaches to * An earlier draft was presented at the ‘Green Taxation in East Asia: Problems and Prospects’ conference at the University of Hong Kong Faculty of Law on January 29, 2010, and...
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