Explorations

One of the most pressing global environmental problems is climate change. The issue of climate change has been in the news a lot recently. In 2002 there was renewed discussion of whether Canada should ratify and implement its Kyoto Protocol obligations. The Kyoto Protocol is an international agreement binding the signatories (mostly wealthy countries) to a schedule of emissions targets for greenhouse gases.

As was mentioned in the text, one of the common complications of Canadian environmental policy involves conflicts between provincial and federal governments over jurisdiction. This is well illustrated in the case of climate change.

• Big polluters are dirtier than ever, study shows
• Meeting Kyoto targets will cost far less then critics predict, report says
• Kyoto push by Quebec irks Alberta

During the general discussion of Canadian environmental policy in Chapter 15, several general points were raised. Briefly discuss how ratification of the Kyoto Protocol would relate to some of these general points.

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Instrument Choice and Climate Change

In earlier chapters, we considered choosing between standards, fees and permit schemes. One can reconsider those alternatives for the case of climate change. When this policy choice was considered in Chapter 14, the main considerations were cost-effectiveness and the total compliance cost burden on firms. With climate change a central consideration is the allocation of the burden of compliance within regions.

A North-South illustrative example of climate change compliance
Suppose that the marginal abatement costs schedules of the North (N) and the South (S) for greenhouse gases are as follows. Initial emissions are also provided. Emissions and abatement are measured in Megatonnes (MT) CO2 equivalent.

MAC_N = 4 + A_N
E⁰_N = 18
MAC_S = 2 + A_N
E⁰_S = 12

Given this information, evaluate the emissions, abatement, abatement costs and compliance costs for each region corresponding to each of the following approaches to reducing global emissions by 1/3.

No Trade	North abates on their own.
C Tax Equal	International greenhouse gas (carbon) taxes, with all revenues returned equally to N and S.
Permits for North	A scheme of internationally traded Carbon Permits, all of which are initially given to firms in the North.
Permits Fair	A scheme of international permits where the permits are allocated to firms in each regions in proportion to the region's initial emissions.

For each case, determine the pattern of abatement, emissions and the total compliance cost of each region. It's possible that some of the allocations involving permits could lead to a negative total compliance cost for one of the regions! That would be the case if that region's sales of permits exceeded what it had to spend on abatement.

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