Thank you very much, Mr. Chair and members of the committee.
Thank you for inviting me today.
It's a pleasure to be here to make the case in favour of carbon pricing and to dispel some of the myths I think we've seen out in public on these policies.
By way of introduction, I'm an associate professor at the University of Alberta, where I teach in our energy and the environment program. For context, I've previously served as visiting scholar at Environment Canada, in 2012 and 2013, and as chair of Alberta's climate leadership panel, in 2015. So I think that makes me the only person who's worked on climate policy under Rachel Notley and Stephen Harper. Since 2016, just for your reference, I've also contributed some analysis to the federal carbon pricing program we're discussing in part today.
With that in mind, the fact that we are here today is a bit telling. Despite the fact that carbon pricing has been in place in Canada for 10 years or more in various jurisdictions, we're still seeing a discussion that relies a lot on staunch opposition and misinformation about these policies.
Despite this, there's near unanimity among economists that imposing a price on carbon is going to deliver emissions reductions at the lowest overall cost to the economy. You've probably heard this over and over again as people present to you. Let me put some clarity around why that is, and you'll probably hear the same message from my colleagues here as well. It's because leveraging the market allows individuals and firms to make decisions not just about how and when to reduce emissions, but also about how and when to emit. It allows those with the most information about the value of those emissions to make decisions as to whether or not to pay the carbon price. We know from principles of economics that to derive the maximum benefit from these policies, we want to apply them as broadly as possible across the economy.
With that in mind, I'd like to address, in my opening statement, a few of the common questions and myths that we see out there about carbon pricing.
I think the one that is most common today is probably the question of why we should tax consumer emissions or deal with the consumers at all. We see Canada's emissions often being painted, from all sides, really, as a large industry issue. I think the most recent incarnation of this is Premier Ford's call to penalize polluters, not commuters. Here's the problem with that. Nationally, about two-thirds of our emissions come from small emitters—buildings, houses, people, factories, etc.—not from large industrial facilities. In some provinces, that share is going to be over 90%. If you have a policy that exempts these emissions or only partially addresses them, that means you're going to end up with more expensive overall emissions reductions and punitive costs on a few industries.
What about impacts on low-income Canadians? Certainly, from our experience in Alberta, that was really important to the Government of Alberta, not to implement a policy that was regressive. Similar concerns come forward for rural residents. As economists, we acknowledge that carbon taxes may be, although not necessarily, regressive, and the concerns about impacts on households or rural regions are real. We need to keep our minds on that, that assessing distributional impacts is important, but also realize that, where these policies have been implemented, the use of carbon tax revenues has mostly been able to offset those concerns through lump-sum rebates, fiscal benefits, etc. With that in mind, though, we must also be careful not to claim that those rebates or transfers are sufficient to make everyone better off. They're not. There are still going to be those in every income group who are made worse off by the policies.
Another thing we must be careful to recognize is that even though the rebates are provided, this does not take away from the effectiveness of the carbon price. The price still applies on emissions. That's what changes behaviour: not the fact that people's disposable income decreases, but that the relative prices change. I do notice occasionally that those who have a lot of concerns about regressive impacts tend to become very concerned with redistribution of revenues to address those concerns as well.
Next, we have concerns about large industries, and in particular competitiveness impacts on trade-exposed sectors. I know you're interested in global aspects of carbon pricing here as well. I think that, first, we need to recognize that these concerns are real and that they particularly affect our resource-dependent provinces, including my home province of Alberta. But here also, economics research gives us a clear solution, which is allocating emissions credits on the basis of output and doing that with a carbon price, so that you don't reduce the overall profitability of the sector but maintain the price signal that exists on emissions and provides firms a reason to innovate. Not surprisingly, those with concerns about competitiveness also have concerns about these allocations, and we've seen, for example, the Leader of the Opposition calling them exemptions.
That's actually the area of a lot of my research, which is to look at “Does this behave the same as an exemption?” The answer is no, it does not. For example, for oil sands firms, you would see those firms capturing the same benefit from an emissions-reducing technology under a carbon tax or a carbon price with output-based allocations as they would from a carbon price alone. That wouldn't be the case if it were a straight exemption.
Relating to innovation, we see a lot of claims. I'll draw an example. We saw in the New York Times in December the U.S. Senate environment committee chair arguing that making energy as clean as we can as fast as we can without raising costs to consumers will be accomplished through investment, invention and innovation. This is pretty common. We see these put up as essentially a dichotomy: that we should either price carbon or innovate. I'd like to say that this is really a false dichotomy. Economists—David Popp is a great example of this—consistently find that price-based policies provide better incentives for innovation than do regulations, and they come without the expense of direct subsidies.
Lastly, does this mean that carbon pricing is a panacea or the only option available to us? Absolutely not, and it shouldn't be painted as such. Regulations, subsidies and other policies can have and have had large impacts on emissions. What the evidence tells us is that if you want to reduce emissions at the lowest total cost to the economy and provide the best stimulus to innovation, you do so through a carbon price.
Thank you for welcoming me here today.
I'm ready to answer your questions.
Thank you.