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Canada, U.S. need joint climate policy, says study

April 2, 2009

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Canada must collaborate with the U.S. to lower greenhouse gas (GHG) emissions in order to minimize the impact on the country’s energy-intensive industries, according to a study co-authored by two SFU researchers for the C.D. Howe Institute.

SFU scientists Chris Bataille and Nic Rivers and C.D. Howe policy analyst Benjamin Dachis argue that if Canada is serious about reducing its GHG emissions it must assign a price to emissions through a cap-and-trade system or a carbon tax.

In their study, Pricing Greenhouse Gas Emissions: The Impact on Canada’s Competitiveness, the authors outline a number of scenarios for how Canada’s climate policy might coexist with the rest of the world. They also look at how certain sectors are likely to be affected by carbon pricing and what governments can do about it.

Overall, they find that the impact of tougher climate-change policies on Canadian competitiveness is likely to be relatively small for most economic sectors with the exception of oil and gas extraction and processing, pulp and paper, metal smelting, chemicals, cement and lime production.

One concern, they note, is that measures Canada might take to reduce GHG emissions may be partly offset by the relocation of Canadian industries to countries that lack tough climate change policies—an effect known as "emissions leakage."

The leakage, they find, would be relatively small: for every five megatonnes of CO2 reduced by Canadian industry only one tonne would be leaked abroad.

And any leakage would be primarily to the U.S. rather than to developing countries, meaning that a joint Canadian-American approach would largely eliminate both the potential for leakage and overall competitiveness issues.

To read the study visit: www.cdhowe.org/pdf/commentary_280.pdf

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