Design, Experiences and Issues
- Critical Issues in Environmental Taxation series
Edited by Larry Kreiser, Mikael S. Andersen, Birgitte E. Olsen, Stefan Speck, Janet E. Milne and Hope Ashiabor
Chapter 2: The cost of enforcing carbon pricing mechanisms: a comparison of the British Columbia carbon tax and the Québec emissions trading system
There is widespread agreement within economics that carbon pricing is an efficient means of reducing the greenhouse gas (GHG) emissions contributing to climate change. The two most common carbon pricing instruments are carbon taxes and emissions trading (cap and trade) systems. There has been a vibrant ongoing debate, supported by an abundance of research, about the relative merits of taxes versus trading systems for achieving cost-effective, lasting GHG reductions.6 Increasingly, scholarship shows that the instrument choice question is not an either/or proposition, since policies can be combined in various ways, such as using regulations to set an allowable level of emissions (a ‘cap’), allocating permits for some economic actors to trade their allowances within the cap, and imposing carbon taxes on actors not covered by the emissions trading system, or even throughout the entire economy. Ultimately, many factors will determine which instrument or combination of instruments is (or is not) applied in a given jurisdiction, many of which have to do with the relevant legal, socio-economic and public policy context, not to mention the political ideologies of the decision-makers in power. Comparative analyses of carbon taxes and emissions trading systems consider many different variables in evaluating which instrument is optimal in a given set of circumstances. These include, inter alia, environmental effectiveness, economic efficiency, administration/implementation, distributional impacts, political feasibility and price certainty/volatility.
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