Thanks very much for inviting me to speak to you about international leadership and pricing pollution.
I am an environmental economist who studies the design of climate change policies. My research has touched on the cost-effectiveness of alternative climate change policies, the impacts of climate policies on the distribution of household income and the impacts of climate policies on greenhouse gas emissions. My comments today are based on that body of research.
l'd like to start by pointing to the overwhelming consensus among economists that the best way to tackle climate change is by imposing a price on carbon emissions. As you probably know, economists are not noted for agreeing with one another, so the recent statement by U.S. economists supporting carbon pricing, published in The Wall Street Journal, is notable due to the remarkable consensus on the issue. The statement in support of carbon prices is signed by all four living former chairs of the U.S. Federal Reserve, by 27 Nobel laureate economists—that's virtually every single living Nobel economist—and by 15 former chairs of the Council of Economic Advisers, among others. Similar statements have been made by Canadian economists, again representing a very broad cross-section of the profession. Similarly, in a poll of leading economists by the Chicago Booth School of Business, not a single economist disputed the idea of imposing a carbon price.
Economists consider a price on carbon to be the best approach to tackling greenhouse gas emissions, because it leverages the invisible hand of the market in reducing emissions. Without a carbon price in place, individuals and businesses have no incentive not to emit. They can use the atmosphere as a free waste dump. With an appropriate carbon price in place, individuals and businesses are given incentives to reduce their emissions. Likewise, a carbon price provides entrepreneurs with incentives to direct their research efforts toward low-carbon technologies. That helps make it cheaper in the future to reduce emissions, just as Andrew was saying.
Importantly, a carbon price provides lots of flexibility by allowing individuals and businesses to tailor their response to their own situation. This is a key feature that separates carbon pricing from a regulatory approach to reducing greenhouse gas emissions, and it is why carbon pricing is considered a much more cost-effective approach to reducing greenhouse gas emissions than a regulatory approach.
I'd like to take my time with the committee to bring up two points related to my research on carbon pricing. First, there is evidence that carbon pricing works and does reduce greenhouse gas emissions. Second, the economic costs of a carbon price are modest.
On the first point, evidence is now accumulating from jurisdictions around the world that have imposed carbon prices. This evidence shows that carbon prices have succeeded in reducing emissions. I have studied the case of British Columbia, which first imposed a carbon price a decade ago. My research shows that the $30 per tonne carbon price has reduced gasoline consumption and emissions by about 8% from where it otherwise would have been without the tax. At least three other studies using different data sets and approaches report very similar findings. Other studies have found similar impacts of the British Columbia carbon tax on diesel consumption and on residential natural gas consumption.
ln Alberta, carbon pricing has already substantially reduced emissions from electricity generation. Across the ocean, carbon pricing has been employed to reduce emissions from transport in Sweden, and to reduce emissions from industry in France, Germany and the United Kingdom. Just as in British Columbia, research on these cases shows that carbon pricing has reduced greenhouse gas emissions in the covered sectors. Of course, this shouldn't come as a surprise. When the price of something is increased, individuals and businesses consume less of it.
The second point l'd like to make concerns the economic impact of carbon pricing. ln places where a carbon price has been employed for some time, it is not possible to observe any impact of the carbon price on economic output. Either there is no impact, or else the impact is too small for us to measure. For example, British Columbia has had a carbon price for a decade, and over that period its economy has grown faster than that of every other Canadian province.
Economists have also conducted hundreds of modelling studies trying to estimate the potential impact of carbon pricing based on computer models of the economy, and here again there is substantial consensus. The impact of a carbon price on the economy will be very small. For example, the Stanford Energy Modeling Forum recently convened a dozen different modelling groups to estimate the potential impact of a carbon price, and all of them reported that the impact of such a policy would be very small, even if the tax level was raised substantially over time. A significant body of research also tells us that carbon pricing will be less costly than other approaches to reducing greenhouse gas emissions.
Overall, in my view, the carbon pricing approach chosen by the federal government is very well supported by the available evidence. lt will reduce emissions at very low overall cost to the economy and at lower cost than the competing approaches.
The approach Canada has adopted builds on 15 years of international experience with carbon pricing. It places Canada in the vanguard of jurisdictions that are seriously trying to tackle carbon emissions.
I offer one point in closing. While the evidence is clear that carbon pricing reduces greenhouse gas emissions, it is also clear that the level of carbon price currently adopted is not sufficient to reach our long-term environmental goals. A key focus for government going forward should be in building on this approach and clearly identifying the policies that will help us to dramatically reduce our emissions of greenhouse gases by mid-century and onwards.
Thanks very much for your time.