Carbon tax vs. Cap-and-Trade

At the behest of the Canadian government, the National Round Table for the Environment and the Economy completed an important study on the long-term climate policy options for Canada.

The Globe and Mail headline screamed "Panel proposes carbon tax" because of course taxes are scary evil things that make good headlines. It is worth looking at what the report actually says:

The first recommendation:

Implement a strong, clear, consistent and certain GHG emission price signal across the entire Canadian economy as soon as possible in order to successfully shift Canada to a lower GHG emissions pathway...

The second:

Institute a market-based policy that takes the form of an emission tax or a cap-and-trade system or a combination of the two.

In other words, the bottom line of the study, by my reading, is that time, not the ongoing tax vs. cap-and-trade debate, is what matters the most. We need to install an effective carbon pricing policy - whether via a carbon tax, cap-and-trade, or a combination, whatever will work politically or logistically - as soon as possible if we want to achieve the long-term emissions reductions with minimal economic consequences. Yes, the structure of the policy is extremely important, but if we wait to long, any policy will fail to meet the long-term targets.

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