EXPECTING THE UNEXPECTED: MACROECONOMIC VOLATILITY

To estimate the emissions reductions and costs of a climate policy, analysts usually compare a policy scenario with a baseline scenario of future economic conditions without the policy. Both scenarios require assumptions about the future course of numerous factors such as population growth, technical change, and non-climate policies like taxes. The results are only reliable to the extent that the future turns out to be reasonably close to the assumptions that went into the model.
In this paper we examine the effects of unanticipated macroeconomic shocks to growth in developing countries or a global financial crisis on the performance of three climate policy regimes: a globally-harmonized carbon tax; a global cap and trade system; and the McKibbin-Wilcoxen hybrid. We use the G-Cubed dynamic general equilibrium model to explore how the shocks would affect emissions, prices, incomes, and wealth under each regime. We consider how the different climate policies tend to increase or decrease the shock’s effect in the global economy and draw inferences about which policy approaches might better withstand such shocks.
We find that a global cap and trade regime significantly changes the way growth shocks would otherwise be transmitted between regions while price-based systems such as a global carbon tax or a hybrid policy do not. Moreover, in the case of a financial meltdown, a price based system enables significant emissions reductions at low economic cost whereas a quantity target base system loses the opportunity for low cost emission reduction reductions because the target is fixed.

Achieving sustainability of the energy sector in Canada

Achieving sustainability of the energy sector in Canada
Energy represents a major sustainable-development challenge for Canada. In the short term, labour shortages and infrastructure bottlenecks are likely to hinder energy developments and need to be addressed.In addition, provincial fiscal management could be improved by adopting prudent allocation and withdrawal rules of revenues from non-renewable resources to and from a long-term fund. Eventually the main challenge will be to curb greenhouse gas emissions (GHGs), despite the rapid expansion of high emitting sectors. The effectiveness of environmental policies could be enhanced by better federal-provincial coordination. Efforts should be concentrated on designing and implementing an missions-trading scheme compatible with corresponding systems abroad. Finally, effective and efficient systems of regulation and taxation are essential to facilitate the timely realisation of energy supply plans.

ACHIEVING SUSTAINABILITY OF THE ENERGY SECTOR IN CANADA

ECONOMICS DEPARTMENT WORKING PAPER No. 618
By
Annabelle Mourougane

Energy represents a major sustainable-development challenge for Canada. In the short term, labour
shortages and infrastructure bottlenecks are likely to hinder energy developments and need to be addressed.
In addition, provincial fiscal management could be improved by adopting prudent allocation and
withdrawal rules of revenues from non-renewable resources to and from a long-term fund. Eventually the
main challenge will be to curb greenhouse gas emissions (GHGs), despite the rapid expansion of high
emitting sectors. The effectiveness of environmental policies could be enhanced by better
federal-provincial coordination. Efforts should be concentrated on designing and implementing an
emissions-trading scheme compatible with corresponding systems abroad. Finally, effective and efficient
systems of regulation and taxation are essential to facilitate the timely realisation of energy supply plans.