GHG policy effectiveness in an unharmonized world
There is a convergence of scientific opinions about the necessity of a more focused global intervention to reduce greenhouse gas emissions. Despite international agreements, the lack of a comprehensive global agreement has led to a mixture of policies across countries, complicating domestic policy making. For Canada, policy design became particularly complex when the United States failed to ratify the Kyoto Protocol. This dissertation explores various domestic emission policies in the context of international trade and heterogeneous policies. Using micro-economic models of vertical markets, a Muth model (Muth, 1964), and a social planner’s problem, the dissertation analyzes the impact of carbon tax, cap and trade and emissions intensity policies in various scenarios. The findings of this thesis illustrate that while cap and trade may be effective in a hypothetical world of single sector within in a closed economy, it is far less effective than a carbon tax in the real world presence of downstream emissions, input substitution, international trade, or firm relocation. Given the administrative complexity, cap and trade systems are designed to be enforced only in the upstream of an industry even though downstream consumers are responsible for a large share of emissions. When inputs and final outputs are traded with countries that do not have a similar policy in place, a cap and trade instrument is harmful for the domestic industry, while dirty foreign firms increase output to the detriment of the domestic industry and the global environment. While this can be remedied by border tax adjustments (BTAs) accompanying the cap and trade instrument, BTA’s are not allowed in the World Trade Organization (WTO). Distributed carbon taxes can avoid this dilemma. Moreover, when emission permits are distributed for free, firms have additional incentives to sell the permits and relocate to countries with less stringent environmental regulations. Emission intensity policies reduce the incentive for industrial flight, and as such can be a more efficient emission trading instrument.
DegreeDoctor of Philosophy (Ph.D.)
DepartmentBioresource Policy, Business and Economics
SupervisorGray, Richard S.
CommitteeBruneau, Joel J.; Belcher, Ken W.; Rosaasen, Ken A.
Copyright DateDecember 2011
emission reduction policies, international trade, global harmonization