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Canada’s Carbon Price Floor

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  • Ian W.H. Parry
  • Mr. 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 & Mr. Victor Mylonas, 2018. "Canada’s Carbon Price Floor," IMF Working Papers 2018/042, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2018/042
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    5. Ian W.H. Parry & Mr. Victor Mylonas & Nate Vernon-Lin, 2017. "Reforming Energy Policy in India: Assessing the Options," IMF Working Papers 2017/103, International Monetary Fund.
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    Cited by:

    1. Ameyaw, Bismark & Yao, Li & Oppong, Amos & Agyeman, Joy Korang, 2019. "Investigating, forecasting and proposing emission mitigation pathways for CO2 emissions from fossil fuel combustion only: A case study of selected countries," Energy Policy, Elsevier, vol. 130(C), pages 7-21.
    2. Ian Parry & Victor Mylonas & Nate Vernon, 2021. "Mitigation Policies for the Paris Agreement: An Assessment for G20 Countries," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 8(4), pages 797-823.
    3. Janko, Zuzana, 2020. "On the relationship between the current account and the fiscal balance: The case of Canada," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    WP; price; pricing; firm; carbon pricing; carbon price; share; price floor; Canada; welfare impacts; incidence; effective carbon price; competitiveness impacts; backstop system; pricing scheme; downstream pricing; emissions pricing; upstream pricing; pricing instrument; differentiated pricing; aggressive pricing; Carbon tax; Greenhouse gas emissions; Public expenditure review; Fuel tax; Non-renewable resources; Global;
    All these keywords.

    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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