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Although there currently exist general equilibrium models that are used to examine the impact of climate change policies on an array of economic variables, there is recognition within government, industry and other stakeholders that modeling needs to be improved in order to generate more far-reaching and resonant policy insights. The impetus for this project stems from that need.
The key goal of this research is to develop a suite of economic models better able to estimate the economic and environmental impacts associated with implementing policies to reduce carbon dioxide emissions and encourage low-carbon innovation.
Researchers are using and improving general equilibrium models to examine the multitude of factors that will be affected by policies to reduce carbon dioxide emissions. The project will also create models regarding carbon policy that are based on sound academic basis, rather than the extreme views on both sides of the debate about carbon pricing.
The team will build on existing models supplied by Environment Canada and draw on data that is more comprehensive than that available in the past. This data will be used to help answer questions about the effects of carbon policy on the economy.
$400,000/2 years; Awarded 2012
Canada has far to go to meet its 2020 GHG reduction targets; the greatest impediments are political (economic and social) ones. A well-designed carbon pricing policy that addresses those impediments would be arguably the most powerful way to drive emission reductions and low carbon innovation across the economy.
This research will identify policy options that can achieve climate goals in the most cost-effective, fair manner. Robust, respected economic models are widely regarded as essential to buttress such policy analysis. By developing world-class models and sharing the results for all to use, this project aims to address key impediments to Canadian climate policy development.
This research will help increase the understanding within government and industry of how different carbon pricing approaches could accelerate technological change, which could lower the costs of GHG reductions and bolster Canada’s competitiveness in a low-carbon economy.
Carbon pricing can generate substantial revenues which could be recycled for clean technology/infrastructure investment, income tax reductions or buffering the impacts on vulnerable industries or groups.
Understanding how a carbon price could interact with pricing of other pollutants from the same sources could produce more effective, efficient regulatory outcomes.
Randall Wigle, Balsillie School of International Affairs and School of Business and Economics, Wilfrid Laurier University
The objective of the research is to help design carbon pricing and related policies to drive the innovation in technology and practices required to achieve major GHG reductions, (particularly in fossil fuel sectors) and minimize the economic and social costs of achieving these reductions. Two issues which need to be addressed in order for progress to be made on climate policy in Canada, and in other areas of the world, are: economic efficiency in terms of minimizing overall abatements costs, and equity in terms of a fair distribution of these costs across regions, industrial sectors, and demographic groups. This model will help advance the capacity to analyse how alternative climate policy designs impact the economic adjustment of these sectors to emission constraints.
By providing a clearer picture of both positive and negative economic impacts, this research may make carbon pricing more acceptable as a policy option. A necessary (though not sufficient) condition for achieving most breakthrough innovations is the ability to realize an economic reward. As such, the absence of a meaningful price on carbon across Canada is a major impediment to low carbon innovation, technology deployment and behavioural change.
Carbon pricing is also widely seen as an essential policy tool for Canada to meet its GHG reduction goals cost-effectively.
The researchers aim to simultaneously develop a sophisticated climate policy evaluation tool for Canada, one that will have weight with policy-makers, and to contribute novel applied research to the academic community.
First, the researchers will develop sophisticated computable general equilibrium models, which will significantly advance the capacity to develop carbon pricing policy options that maximize innovation incentives while minimizing economic and social costs.
Second, the research will inform the work of a Canadian Green Fiscal Commission, made up of leading Canadian economic experts (forthcoming and separately funded). When formed, the commission will research and report on approaches for using market-based reforms, particularly carbon pricing, to build a more sustainable, competitive Canadian economy. Similar commissions in many other countries have had success in laying the foundation for such reforms.
Third, by partnering with Environment Canada, an oil company (Shell), and a green economy think tank, this research is well-connected to government and key policy drivers. This broad range of partners will help ensure the results of this work are broadly supported and used, which will increase the chances of policy uptake.
To read more about this project, click here