Montreal, June 13, 2018 – The carbon market, in which Quebec, Ontario, and California take part, will have a negligible impact on greenhouse gas (GHG) emissions while leading to billions of dollars of losses for the economies of Quebec and Ontario, shows a publication launched today by the MEI.
Prices on the carbon market will have to increase substantially for people and companies to adopt new ways of doing things. Even with an anticipated carbon price of $30 to $100 per tonne in 2030 (compared to around $20 today), no significant change will occur. “People will simply pay more and continue to emit almost as much,” says Germain Belzile, Senior Associate Researcher at the MEI and co-author of the publication.
A Quebec Finance Department assessment estimates, for example, that an increase in the carbon price to $93 in 2030 would achieve only one-fifth of the desired reduction. A litre of gasoline would nonetheless cost around 20 cents more than today. “This may be vexing, but you’re not going to sell your car over it, and other things being equal, emissions will not go down much,” explains Germain Belzile.
Also, given the current evolution of the carbon price, the money used to buy the required emission credits will go… to California. Indeed, if the price of carbon stays low, it’s because there’s a significant surplus of credits, and if Quebec and Ontario need to purchase more emission credits, it is necessarily California, a much bigger market, that will have some to sell.
The Auditor General of Ontario forecasts capital flight of $470 million from Ontario to California in 2020, and $2.2 billion in 2030. Quebec will probably be in the same situation.
Increasing the price of emissions, for example by imposing a very high tax on carbon, would not work any better. “If the price of carbon is higher than what companies are able to pay, they will displace their activities to places where emissions are less severely limited, will reduce their activities, or will even shut their doors. In this case, it is jobs that will disappear,” explains Mark Milke, independent policy analyst and co-author of the publication.
For a mechanism like the carbon market to succeed in reducing GHG emissions, it cannot be limited to three jurisdictions that account for only a small portion of the North American economy. This raises questions about the pertinence of Quebec and Ontario taking part in the carbon market. “It’s not by sending capital or jobs abroad that Quebec and Ontario are going to reduce GHG emissions,” says Mark Milke.
“If the goal of the governments of Quebec and Ontario is to address the problems caused by climate change, then they should take a global approach. If such an approach, or one that at least encompasses North America, is not feasible, we should just put our trust in technological progress and innovation. We would reach our objectives just as quickly, and there would be a lot less waste,” concludes Germain Belzile.
The Economic Note entitled “The Carbon Market: Chasing Away Jobs and Capital without Reducing GHGs” was prepared by Germain Belzile and Mark Milke, respectively Senior Associate Researcher at the MEI and independent policy analyst. This publication is available on our website.
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The MEI is an independent public policy think tank. Through its publications and media appearances, the MEI stimulates debate on public policies in Quebec and across Canada by proposing reforms based on market principles and entrepreneurship.
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