ECON371/UBCO2024WT1/NewsWiki/group1week7

Article:

https://www.cbc.ca/news/canada/new-brunswick/federal-tax-carbon-alternative-1.7373254

Problem:

Many emitters in the province of New Brunswick emit over the limit, so the proposal for a new carbon tax is being discussed by Premier Susan Holt and Nova Scotia Liberal Leader Zach Churchill.

Prof: My read is that the problem is finding a way to achieve GHG emissions reductions in Atlantic Canada in a way that is both cost effective and politically acceptable.

Summary:

Due to a vague election campaign promise made by N.B. Premier Susan Holt, she is now being asked to follow up with specifics for a carbon tax, with N.S. Liberal Leader Zach Churchill claiming they discussed a cap-and-trade system. The goal of this new tax would be to reduce emissions while removing the tax that consumers currently pay. While Holt said they would be open to the idea, she did not end up bringing up a cap-and-trade system, and only mentioned wanting to talk to the federal government about it while vaguely reaffirming the issue with the current system. The current system taxes the consumer 17.6 cents per liter of gasoline, while a cap-and-trade system would put the tax and costs directly on the producers instead. N.B already has a system like this, but it only covers some emissions and is criticized by the Green Party to be weak. With most emitters in N.B. significantly producing beyond the cap, the Green Party is proposing that N.B. join Quebec's cap-and-trade market, which has already been joined by N.S.

Prof: A cap and trade system is not an emissions tax. While in some situations the two incentive based policies are equivalent, a cap and trade fixes the emissions level, while a tax fixes the marginal cleanup (abatement) cost.

Economic concepts:

1. Externalities: The unintended side effects of economic activity that affect third parties who are not directly involved in the transaction. Carbon emissions have negative externalities; a common example is air pollution, which negatively affects society.
2. Market Based Regulation: Policy instruments that use markets, price, and other economic variables to provide incentives for polluters to reduce or eliminate negative environmental externalities. Prof: More precisely, a market based (or incentive based) policy provides an incentive to reduce emissions (or other activities) that impose external costs.

Application of concepts:

1. Both carbon taxes and cap-and-trade systems are used to combat the negative externalities of carbon emissions by putting a dollar value on pollution. Emissions have social and environmental costs not reflected in market prices, and carbon pricing aims to account for these costs. By either taxing emissions directly or capping industrial pollution, carbon pricing will help internalize the societal cost of carbon emissions. By adding the tax at the pump, residents will feel incentivized to use more fuel-efficient, or electric cars which would provide a positive externality to those around them due to the lessened pollution. Prof:The external cost resulting from carbon emissions is the cost of dealing with climate change.
2. Under cap-and-trade, the government sets a cap on total emissions for certain industries. Companies that exceed the cap must purchase emissions credits, while those that emit less can sell their excess allowances. This creates a financial incentive for companies to reduce emissions, as reducing emissions can lead to financial gains in the credit market. Cap-and-trade contrasts with the federal carbon tax, which directly charges consumers at the pump. While both systems aim to reduce emissions, they have different economic impacts such as price certainty/ emissions certainty as well as certain incentives for the industry, where the cap-and-trade policy creates a market for industries to trade credits, incentivizing innovation in emission reductions. In contrast, the carbon tax is universal and directly affects consumers by increase fuel costs. Prof: For this particular idea, a cap and trade for all of Atlantic Canada, is a way to expand the market within which credits can be traded. One of the problems with cap and trade approaches to price emissions is when the market is thin. The cap and trade programs that have been introduced in Canada are targeted at large emitters. In Atlantic Canada, there may not be enough large emitters in any single province to expect a well functioning market. A regional market would be more likely to have a large enough number of participants to achieve the cost effectiveness that incentive based policies are intended to achieve.

Conclusion:

Given the current circumstance of the emissions in New Brunswick, many are suggesting a stricter cap-and-trade system to be implemented. The current system in N.B. is ineffective, and by more strictly enforcing the system, companies will be incentivized to make an effort to reduce their emissions in order to save money by not having to buy more credits.