For Canada to meet its Kyoto target - an average 33% reduction from the projected business-as-usual level over the five-year period 2008-2012 - the government would need to introduce measures that are forceful and that would result in deep emission cuts starting next year.
To be effective, these measures would need to send strong price signals quickly and widely throughout the economy, impacting on both large industrial emitters of GHGs and individual consumers.8
Given these requirements, a broad carbon tax would likely have to play a key role in any policy tool kit designed to meet Kyoto targets beginning next year, as it is the only economy-wide policy instrument that could conceivably be up and running in such a short time. Such a tax would need to apply to all purchases of fossil-fuel energy by business and individuals in order to have maximum effect.
Revenue received from a broad carbon tax could be recycled back through the economy through changes to other tax rates, although at the same time it would be essential to ensure that the government's overall fiscal situation be kept whole in order to avoid returning to a deficit.
The government could, in theory, supplement a carbon tax with a strong regulatory component on Canada's largest GHG emitters, consistent with the polluter-pays principle. This would also make it possible to establish a domestic emissions trading system among regulated sectors and businesses to help mitigate some of the costs for regulated industries. International trading, despite the uncertainties with respect to the supply of credits identified above, could also mitigate some of the domestic costs and reduce Canada's overall burden.
The principal constraint around implementing these measures beginning in 2008 is a practical one. Design and implementation of a carbon tax, along with development of a coherent system of GHG regulation and domestic trading, as well as engagement in the international carbon market, would be an extremely complex initiative for any government to undertake in such a short period of time. For example, regulating the largest GHG emitters alone will require in the range of two years for design, target setting, verification, legally required public and stakeholder consultations, and regulatory drafting.
For Canada to meet its Kyoto target - an average 33% reduction from the projected business-as-usual level over the five-year period 2008-2012 - the government would need to introduce measures that are forceful and that would result in deep emission cuts starting next year.
For all intents and purposes it is therefore not realistic to contemplate that all three key elements of a comprehensive policy package to meet Kyoto - carbon tax, regulatory system, domestic and international trading - could be up and running within one year. It is nevertheless useful to put aside administrative practicalities and focus for a moment on the broader question of the implications for Canada's economy of attempting to meet the Kyoto targets for the 2008-2012 period beginning next year, assuming that appropriate initiatives could be put in place as rapidly as would be required. The following analysis examines this question in some detail.
8 Independent evaluations of previous Government of Canada sponsored subsidy and information programs have demonstrated that these "voluntary" programs have slowed the pace at which GHG emissions have grown, but have not stopped their overall growth, and would not be sufficient to achieve the deep reductions required under the Kyoto Protocol. For example, "Burning Our Money to Warm the Planet", M. Jaccard et al., CD Howe Institute, May 2006.