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Canada’s Carbon Price Floor

Author

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  • Ian W.H. Parry
  • Victor Mylonas

Abstract

The pan-Canadian approach to carbon pricing, announced in October 2016, ensures that carbon pricing applies throughout Canada in 2018, with increasing stringency over time to reduce emissions. Canadian provinces and territories have the flexibility to either implement an explicit price-based system—with a minimum price of CAN $10 per tonne of carbon dioxide equivalent in 2018, increasing to CAN $50 per tonne by 2022—or an equivalently scaled emissions trading system. This paper discusses the rationale for, and design of, the price floor requirement; its (provincial-level) environmental, fiscal, and economic welfare impacts; monitoring issues; and (national-level) incidence. The general conclusion is that the welfare costs and implementation issues are manageable, and pricing provides significant new revenues. A challenge is that the floor price by itself appears well short of what will be needed by 2030 for Canada’s Paris Agreement pledge.

Suggested Citation

  • Ian W.H. Parry & Victor Mylonas, 2018. "Canada’s Carbon Price Floor," IMF Working Papers 18/42, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:18/42
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    References listed on IDEAS

    as
    1. Fell, Harrison & MacKenzie, Ian A. & Pizer, William A., 2012. "Prices versus quantities versus bankable quantities," Resource and Energy Economics, Elsevier, vol. 34(4), pages 607-623.
    2. Ian W.H. Parry & Baoping Shang & Philippe Wingender & Nate Vernon & Tarun Narasimhan, 2016. "Climate Mitigation in China; Which Policies Are Most Effective?," IMF Working Papers 16/148, International Monetary Fund.
    3. Ian W.H. Parry & Victor Mylonas & Nate Vernon, 2017. "Reforming Energy Policy in India; Assessing the Options," IMF Working Papers 17/103, International Monetary Fund.
    4. Parry, Ian W. H. & Bento, Antonio M., 2000. "Tax Deductions, Environmental Policy, and the "Double Dividend" Hypothesis," Journal of Environmental Economics and Management, Elsevier, vol. 39(1), pages 67-96, January.
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    Cited by:

    1. repec:eee:enepol:v:130:y:2019:i:c:p:7-21 is not listed on IDEAS
    2. Ian Parry & Victor Mylonas & Nate Vernon, 2018. "Mitigation Policies for the Paris Agreement: An Assessment for G20 Countries," IMF Working Papers 18/193, International Monetary Fund.

    More about this item

    Keywords

    Greenhouse gas emissions; Fossil fuels; Energy prices; Environmental policy; Canada; Demand elasticity; Value added taxes; Price elasticity; Consumer goods; carbon price; price floor; welfare impacts; incidence; effective carbon price; competitiveness impacts; Environmental Economics: Government Policy; GHGs; BAU; fuel tax; Paris agreement; carbon tax;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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