Cap-and-trade, carbon tax not much different, report says

James Cowan
Vancouver Sun
October 24, 2008

TORONTO -- Canadian politicians overstate the differences between carbon taxes and cap-and-trade programs as tools to reduce greenhouse gases, a new report suggests.

A study prepared by the Pembina Institute, an energy think-tank suggests neither approach will effectively cut emissions on its own. Furthermore, the two have more in common than politicians in the recent election would admit.

Both the Conservatives and the NDP advocated variations of the cap-and-trade model, which imposes a limit on the emissions that a company can produce and then allows corporations that do not meet the targets to buy further credits.

The Liberals' much-maligned Green Shift proposed a tax on fossil fuels that would fund cuts to income and corporate taxes.

Either method would result in price hikes for consumers, according to Don Drummond, TD's chief economist. "The ones supporting a cap-and-trade never mentioned the impact on households, pretending, I guess, that there wasn't going to be any impact, which of course is not true."

While either system could increase the cost of living, either is also a viable way to cut emissions, according to Matthew Bramley of the Pembina Institute.

"The debate we've seen publicly between carbon taxes and cap-and-trade has exaggerated the differences between the two ways to do things," said Matthew Bramley, one of the report's authors. "The more you look at them, the more similar they appear."

Both systems can be designed to offer flexibility for different industries, to minimize administrative complexity and to conform with the Kyoto Protocol and other international reduction regimes, according to the report.

"From an environmental perspective, the more important question is how stringent is the policy," Bramley said. "Those questions are more fundamental than the ones we've been hearing about one versus the other."

Choosing Greenhouse Gas Emission Reduction Policies in Canada
Pembina Institute, 24-Oct-2008