## wp1842

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---

### Overview
- Section title: "1. NDCs for the Paris Agreement, G20 Countries." (appears on page "27.")
- Figures and Key Metrics Included:
  - Figure 1: "Sources of GHGs by Province, 2014."
  - Figure 2: "Projected CO2 Shares with No Carbon Pricing, 2022."
  - Figure 3: "Fuel Prices, Taxes and Externalities for Alberta, 2022."
  - Figure 4: "Impacts of $50 Carbon Price, 2022."
  - Figure 5: "Reduction in Effective Carbon Price from 25 percent Cut in Fuel Taxes, 2022."
  - Figure 6: "Impacts of $50 Carbon Price on Industry Costs, 2022."
  - Figure 7: "Total Burden of $50 Carbon Price on Household Consumption Deciles, 2022."

### Context and policy rationale
- Canada’s NDC: pledged to reduce GHGs by 30 percent below 2005 levels by 2030.
- Federal pan-Canadian carbon pricing proposal: minimum CAN $10 per tonne CO2e in 2018, rising to $50 per tonne by 2022 (U.S. $39 per tonne by 2022).
- Carbon pricing characterized as:
  - Most effective instrument for cost-effective emissions reductions.
  - Revenue-raising and administratively straightforward (e.g., extension of existing fuel taxes).
- Preference for coordination over emissions prices (price floors) rather than emissions quantities to reduce investment uncertainty and allow jurisdictional flexibility.
- Expected price volatility under a US ETS estimated to increase cumulative costs by "around 15–20 percent" vs. a policy with prices rising annually at the interest rate.
- Global price context:
  - Global average carbon price around $1 per ton of CO2 (authors' calculations using WBG 2017).
  - US IAWG estimate: US $50 per ton for 2020 emissions (in 2015$), rising at about 2–3 percent a year in real terms.
  - Stern and Stiglitz: carbon prices of at least US$40–80 per ton by 2030 and $50–100 by 2030 to contain mean projected warming to 2oC.

### Provincial emissions and coverage
- National GHGs in 2014: "720 million tonnes."
- Five provinces account for 93 percent of national GHGs in 2014:
  - Alberta: 38 percent
  - Ontario: 28 percent
  - Quebec: 11 percent
  - Saskatchewan: 10 percent
  - British Columbia: 8 percent
  - Manitoba: 3 percent
- CO2 emissions from fossil fuel combustion share across provinces: between 62 percent (Saskatchewan) and 73 percent (Alberta).
- Emissions intensity (2014) per CAN $1,000 GDP:
  - Quebec: "0.21 tons of GHGs per CAN $1,000 GDP"
  - Saskatchewan: "1.05 tons of GHGs per CAN $1,000 GDP"
- Administrative preference: collect carbon tax upstream at the point of fuel supply (example refinery counts: Quebec 2, Ontario 4, Saskatchewan 4, Alberta 9, British Columbia 2).

### Model assumptions and parameterization
- Fuel taxes and markups over crude prices fixed in real terms.
- Fuel price forecasts: average of flat IMF 2017 and rising IEA 2016 forecasts.
- Elasticities (constant):
  - Price elasticity for gas and petroleum use in road transport and household/industrial sectors: "–0.5" (half response from efficiency improvements, half from use reduction).
  - Price elasticity for electricity: "–0.5".
  - Conditional coal demand elasticity: "–0.5".
  - Conditional gas demand elasticity: "–0.75".
- Rates of autonomous technological change for energy efficiency: "0.5 percent a year for fossil generation."
- Baseline (BAU) for cross-province comparison: current carbon pricing set to zero; each province then assumed to implement a "$50 per tonne" carbon price applied comprehensively across fossil fuel CO2 emissions.
- Model focuses on CO2 from fuel combustion (not CO2e broader GHGs) and uses 2014 NEB (2016) fuel use aggregated and projected to 2022 using provincial GDP growth between "1 and 2 percent" and income elasticities between "0.6 and 0.7."
- Caveats:
  - No trade linkages among provinces or other countries.
  - No distinction of capital vintages.
  - Does not account for provisions for large industry that might lower fiscal and environmental effectiveness.
  - Increasing fuel price elasticities by 50 percent would increase emissions reductions and welfare costs of carbon pricing by roughly 50 percent.

### BAU projections and emission composition (2022)
- Under BAU (zero carbon pricing in all provinces):
  - Household/industrial sector accounts for "more than half" of projected CO2 emissions in 2022, mostly from natural gas.
  - Power sector shares in BAU emissions:
    - "More than 20 percent" in Alberta and Saskatchewan.
    - "Less than 2 percent" in British Columbia and Quebec.
  - Road fuels account for between "11 percent" (British Columbia) and "44 percent" (Quebec) of emissions.

### Impacts of a $50 per tonne carbon price (2022, compared to BAU)
- Emissions reductions:
  - Reduces CO2 emissions by an estimated "16–23 percent" across provinces in 2022 relative to no pricing.
  - Province-specific reductions listed:
    - Quebec: "16 percent reduction."
    - British Columbia and Ontario: "23 percent reduction."
- Fiscal impacts (carbon pricing revenues as percent of provincial GDP):
  - Quebec and Ontario: "around 0.5 to 1 percent of GDP."
  - Other provinces: "around 2.0–2.5 percent of GDP."
- Welfare costs (net of domestic non-climate environmental benefits):
  - Range: "0–0.45 percent of GDP" in principal findings summary.
  - Province-specific approximate welfare costs:
    - Quebec and Ontario: "0.15–0.3 percent of GDP."
    - More emissions-intensive provinces: "more than 0.6 percent of GDP."
  - Subtracting domestic environmental benefits reduces net welfare losses by:
    - "Around one-third" in Alberta and British Columbia.
    - "Around one-half" in Saskatchewan.
    - "More than one-half" in Quebec and Ontario.
- Production cost impacts:
  - Raises production costs on average by "5.7 percent" for all Canadian exporters (principal summary).
  - Raises production costs by "16 percent" for the "10 percent of most vulnerable exporters" (principal summary).
  - Detailed incidence results (selected industries, percent cost increases in 2022):
    - Diamond mining: "9.4 percent".
    - Forestry and logging: "12.5 percent".
    - Water transportation: "23.2 percent".
  - Exporter vulnerability:
    - For the "10 percent of most affected exporting industries": average cost increase "16.6 percent."
    - For the "32 percent of most affected exports": average cost increase "9.9 percent."
    - For exporters as a whole: average cost increase "5.6 percent."

### Per-unit fuel price changes in Alberta (2022, $50 carbon)
- Per-unit energy price increases:
  - Natural gas: "$2.8 per gigajoule (GJ)."
  - Coal: "$4.8 per GJ."
- Percentage increases:
  - Coal price increase: "126 percent."
  - Natural gas price increase: "100 percent."
  - Road fuels price increase: "about 20 percent."
  - Other oil products (not subject to excise) price increase: "37 percent."
- Context on pre-existing taxes:
  - Pre-existing fuel taxes are "about $5 per GJ," almost five times larger per GJ than for coal.
- Non-carbon externalities for road fuels: rough estimate "around $17 per GJ" (principally congestion and accidents).

### Effective carbon price when pricing is non-uniform or fuel taxes change
- Effective carbon price must account for relative environmental effectiveness using the share of CO2 reductions under comprehensive pricing.
- Example: exempting road fuels reduces effective carbon price by the share of road fuels in CO2 reductions under comprehensive pricing (Quebec illustration: reduction in effective price "20 percent" from Figure 4a, not "44 percent" from Figure 2).
- Fuel-tax cut scenario:
  - A "25 percent reduction in fuel taxes in 2022" would lower the effective carbon price by "between only $0.5 and $1.5 per tonne of CO2" in four provinces.
  - For Quebec, the "25 percent fuel tax reduction lowers the effective carbon price by $4 per tonne."

### Industrial policy responses and output-based pricing
- Federal backstop: facilities emitting "50,000 tonnes or more of CO2" can participate in an output-based pricing scheme:
  - Charged "$50 per tonne" for marginal emissions above a GHG emissions limit and receive tradeable credits if emissions are below the limit.
  - Proposed limit: output times "70 percent of production-weighted national average emissions intensity" for the industry classification.
  - Facilities emitting between "20 and 50 kilotons of CO2 equivalent" producing an activity for which a standard is prescribed can opt in.
- Provincial variations:
  - Alberta: output-based pricing for facilities emitting "100,000 tonnes or more."
  - Ontario and Quebec: provide free allowances to some industrial facilities.
- Trade-offs: output-based pricing reduces industry burden but is less environmentally effective and foregoes revenue.

### Household incidence (distributional impacts, $50 per tonne, 2022)
- Data: Budget shares from the "2009 Survey of Household Spending" covering "16,758 households"; households grouped into consumption deciles.
- Distributional summary (roughly distribution neutral):
  - Burdens vary from "6.8 percent of consumption" for the second decile to "7.8 percent" for the sixth decile.
  - Direct burden of higher energy prices accounts for "around 50–60 percent" of the total burden.
  - Bottom and top consumption deciles direct burdens: "3.3" and "3.9 percent of consumption" respectively.
  - Indirect burden (price increases of other consumer products) varies between "about 3.2 and 3.6 percent of consumption" across deciles.
  - Compensating the bottom decile for the loss in consumption would require "only 5 percent" of potential carbon pricing revenues ("12 percent" for the bottom two deciles).
- Method notes: assumes full pass-through of input cost increases and unchanged budget shares; moderately overstates incidence impacts by ignoring behavioral responses and infra-marginal exemptions.

### Key policy design conclusions and trade-offs
- Coordination over carbon prices rather than emissions quantities preferred to reduce price uncertainty and mobilize low-emission investment.
- Price-floor coordination (rather than a single harmonized price) has appeal: allows jurisdictions flexibility and avoids holding back more ambitious jurisdictions.
- Administrative implementation recommended upstream at fuel supply, with phased coverage extension as monitoring capacity develops.
- Emphasis on “effective” carbon prices to permit practical flexibility and transparency about offsets or fuel tax interactions.
- Competitiveness concerns imply relief measures (e.g., output-based pricing) that trade off environmental effectiveness and fiscal revenue.
- Meeting Canada’s full Paris pledge by 2030 would likely require price increases well beyond $50 per tonne; spreadsheet estimate suggests around "$170 per ton" CO2 would be needed to meet the Paris pledge in 2022 (noted as highly speculative).

### Role of a Canadian price floor in international cooperation
- Canada’s carbon price floor could prototype a coalition of large emitters complementing the Paris process.
- Case for a price floor stronger at country-group level due to heterogeneity in fiscal needs and domestic environmental benefits.
- Enforcement is the key challenge; Article 6.2 of the Paris Agreement (recognizing internationally traded mitigation units) could provide a vehicle: countries with less stringent NDCs can sell excess mitigation units at the floor price; countries with more stringent NDCs can purchase units at the floor price.

### Data sources, figures, and Table 1 (NDCs for G20 countries)
- Key data sources: ECCC (2017b), NEB (2016), UNFCCC (2016), US EPA (2014), US IAWG (2016), WBG (2017).
- Figure 2 numeric labels shown in figure: ".77, .39, .33, .25, 1.05, .21, .32, .44, .32, .23" (chart axis label: GHGs, mn tonnes CO2 equivalent).
- Table 1 — NDCs for the Paris Agreement, G20 Countries (selected entries preserved exactly):
  - Argentina — GHGs 15% below BAU in 2030 — 0.6 — 0.39 — 4.7
  - Australia — GHGs 26–28% below 2005 by 2030 — 1.0 — 0.25 — 15.4
  - Brazil — GHGs 37% below 2005 by 2025 — 1.5 — 0.22 — 2.6
  - Canada — GHGs 30% below 2005 by 2030 — 1.5 — 0.30 — 15.1
  - China — CO2/GDP 60–65% below 2005 by 2030 — 28.5 — 0.98 — 7.5
  - France — GHGs 40% below 1990 by 2030 — 0.8 — 0.11 — 4.6
  - Germany — GHGs 40% below 1990 by 2030 — 2.0 — 0.19 — 8.9
  - India — GHG/GDP 33–35% below 2005 by 2030 — 6.2 — 1.10 — 1.7
  - Indonesia — GHGs 29% below BAU in 2030 — 1.3 — 0.52 — 1.8
  - Italy — GHGs 40% below 1990 by 2030 — 0.9 — 0.15 — 5.3
  - Japan — GHGs 25% below 2005 by 2030 — 3.4 — 0.25 — 9.5
  - Korea — GHGs 37% below BAU in 2030 — 1.6 — 0.42 — 11.6
  - Mexico — GHGs 25% below BAU in 2030 — 1.3 — 0.37 — 3.9
  - Russia — GHGs 25–30% below 1990 by 2030 — 4.7 — 0.83 — 11.9
  - South Arabia — GHGs 130 mn tons below BAU by 2030 — 1.7 — 0.79 — 19.5
  - South Africa — GHGs 398–614 mn tons in 2025 and 2030 — 1.4 — 1.40 — 9.0
  - Turkey — GHGs up to 21% below BAU by 2030 — 1.0 — 0.37 — 4.5
  - United Kingdom — GHGs 40% below 1990 by 2030 — 1.2 — 0.14 — 6.5
  - United States — GHGs 26–28% below 2005 by 2025 — 14.5 — 0.30 — 16.5
- Table source note: UNFCCC (2016), https://data.worldbank.org/indicator. Table note: BAU denotes business as usual with no new mitigation measures; conditional and unconditional pledges handled as specified.

*Source: wp1842 (IMF working paper content provided).*

### 1. NDCs for the Paris Agreement, G20 Countries .........................................................................

### 1. NDCs for the Paris Agreement, G20 Countries

### Overview
- Section title: "1. NDCs for the Paris Agreement, G20 Countries."
- Section appears on page "27."

### Figures and Key Metrics Included
- Figure 1: "Sources of GHGs by Province, 2014."
- Figure 2: "Projected CO2 Shares with No Carbon Pricing, 2022."
- Figure 3: "Fuel Prices, Taxes and Externalities for Alberta, 2022."
- Figure 4: "Impacts of $50 Carbon Price, 2022."
- Figure 5: "Reduction in Effective Carbon Price from 25 percent Cut in Fuel Taxes, 2022."
- Figure 6: "Impacts of $50 Carbon Price on Industry Costs, 2022."

### Scenarios and Numerical Values Presented
- Years referenced: "2014" and "2022."
- Carbon price scenario explicitly shown: "$50 Carbon Price."
- Tax change scenario explicitly shown: "25 percent Cut in Fuel Taxes."

*Source: wp1842 - 1. NDCs for the Paris Agreement, G20 Countries (PDF).*

### 7. Total Burden of $50 Carbon Price on Household Consumption Deciles, 2022 ................................. 27

### 7. Total Burden of $50 Carbon Price on Household Consumption Deciles, 2022

### Introduction and context
- Canada pledged to reduce GHGs by 30 percent below 2005 levels by 2030 (NDC).
- Prime Minister Justin Trudeau proposed a pan-Canadian carbon pricing approach with a minimum price of CAN $10 per tonne CO2e in 2018, rising to $50 per tonne — or U.S. $39 per tonne — by 2022.
- Carbon pricing is identified as the most effective instrument for cost-effective emissions reductions, raises significant revenue, and can be administratively straightforward (e.g., extension of existing fuel taxes).
- Five provinces account for 93 percent of national GHGs of 720 million tonnes in 2014: Alberta (38 percent), Ontario (28), Quebec (11), Saskatchewan (10), and British Columbia (8). Manitoba accounted for 3 percent.

### Rationale: price versus quantity and price-floor design
- Coordination over emissions prices (rather than emissions quantities) is argued to be generally preferable on economic grounds (more certainty for low-emission investment).
- Coordination over price floors (rather than a single harmonized price level) has practical appeal to allow jurisdictions flexibility and to avoid holding back more ambitious jurisdictions.
- Expected price volatility under an ETS for the United States is estimated to increase cumulative costs by around 15–20 percent compared with a policy where prices rise annually at the interest rate.
- Carbon price floors have analogs in tax-minima arrangements (e.g., EU tax minima for VAT and excises).

### Implementation design choices and monitoring
- Coverage: CO2 emissions from fossil fuel combustion account for between 62 percent (Saskatchewan) and 73 percent (Alberta) of total GHGs across provinces. Emissions intensity varies from 0.21 tons of GHGs per CAN $1,000 GDP in Quebec to 1.05 in Saskatchewan (2014).
- Administrative preference: Collect carbon taxes at the point of fuel supply (after processing) since emissions factors are better established and collection points are few (e.g., Quebec 2 refineries, Ontario 4, Saskatchewan 4, Alberta 9, British Columbia 2).
- Choice of instrument: Carbon taxes are more naturally aligned with price-floor requirements, but ETSs can be accommodated via minimum auction prices, variable carbon taxes equal to the difference between floor and prevailing ETS price, or caps set to match projected tax-equivalent emissions.
- Monitoring: Focus on “effective” carbon prices (accounting for differential pricing and existing fuel taxes) to allow flexibility, make chiseling transparent, and count emissions implications of fuel tax adjustments.

### Price level considerations and international context
- Global average carbon price around $1 per ton of CO2 (authors' calculations using WBG 2017).
- US IAWG estimate: US $50 per ton for 2020 emissions (in 2015$), rising at about 2–3 percent a year in real terms.
- Stern and Stiglitz (discussion): Containment of mean projected warming to 2oC would require carbon prices of at least US$40–80 per ton by 2030 and $50–100 by 2030.
- The $50 per tonne floor for 2022 is seen as a reasonable intermediate target, though further increases beyond 2022 may hinge on pricing developments in trading partners.

### Provincial-level impacts (principal quantitative findings)
- The $50 per tonne carbon price:
  - Reduces CO2 emissions by an estimated 16–23 percent below levels (with no pricing or other mitigation measures) in 2022 across provinces.
  - Raises significant revenues of 0.5–2.5 percent of provincial GDP.
  - Imposes welfare costs (net of domestic, non-climate environmental benefits) of 0–0.45 percent of GDP.
- Production cost impacts:
  - Raises production costs on average by 5.7 percent for all Canadian exporters.
  - Raises production costs by 16 percent for the 10 percent of most vulnerable exporters.
- Industrial and process emissions: clinker production can be monitored and taxed in proportion to clinker emissions factors; methane and nitrous oxide have high global warming potentials (1 ton methane = 21 tons CO2e; 1 ton nitrous oxide = 310 tons CO2e over a century).
- Provincial heterogeneity: limited heterogeneity among Canadian provinces in fiscal capacity and local air pollution reduction potential implies the $50 floor is broadly relevant, though competitiveness concerns constrain higher provincial pricing in isolation.

### Analytical model (approach and parameterization)
- Model distinguishes coal, natural gas, and non-carbon fuel aggregate in power; gasoline and diesel in road transport; and direct use of coal, natural gas, and oil in household and industrial sectors (including non-road transport).
- Provincial fuel use by sector is aggregated from 2014 NEB (2016) data and projected to 2022 in a BAU case using:
  - Provincial projections of annual GDP growth between 1 and 2 percent (NEB 2016).
  - Income elasticities for energy products between 0.6 and 0.7.
  - Rates of autonomous technological change for energy efficiency: 0.5 percent a year for fossil generation.
- The spreadsheet model focuses on CO2 emissions from fuel combustion (not broader GHGs in CO2e) for the primary analysis.

### Key policy design conclusions and trade-offs
- Coordination over carbon prices rather than emissions quantities is preferable to reduce price uncertainty and mobilize low-emission investment.
- Allowing provinces flexibility above the price floor can be efficient (raise revenue, local environmental benefits, political acceptability) but large deviations above $50 per tonne are unlikely due to competitiveness concerns.
- Administrative implementation is most practical upstream at fuel supply, with phased coverage extension to other sources as monitoring capacity develops.
- Focusing on effective carbon prices permits practical flexibility and transparency about offsets or fuel tax interactions.
- Competitiveness concerns suggest relief measures (e.g., output-based pricing for large industrial facilities) will involve trade-offs with environmental and fiscal objectives.

*Source: wp1842 - 7. Total Burden of $50 Carbon Price on Household Consumption Deciles, 2022 (excerpt).*

### 1.25 percent for zero-carbon generation, and 0.75 percent in other sectors), and (iv) future fuel

### 1.25 percent for zero-carbon generation, and 0.75 percent in other sectors), and (iv) future fuel

### Model assumptions and parameterization
- Fuel taxes, and markups over crude prices (e.g., for processing and transportation), are fixed in real terms.
- Fuel price forecasts are based on averaging over flat price forecasts in IMF 2017 and rising forecasts in IEA 2016.
- Carbon pricing impacts on fuel use depend on constant elasticities:
  - Price elasticity for use of gas and petroleum products in road transport and household/industrial sectors: –0.5 (with half the response reflecting improvements in energy efficiency and the other half reductions in product use).
  - Price elasticity for electricity: –0.5.
  - Conditional coal demand elasticity: –0.5.
  - Conditional gas demand elasticity: –0.75.
- User prices for gasoline and diesel vary modestly across provinces due to differences in provincial excises; prices for coal, natural gas, and other petroleum products are taken as given across provinces.
- Carbon pricing raises fuel prices in proportion to the fuel’s CO2 emissions factors (analysis focuses only on CO2 from fuel combustion).
- Delivered electricity prices for 2014 vary between 7.3 (in Quebec) and 14.5 (in Alberta) cents per kWh; future prices change with generation costs (technological change, international fuel prices, and carbon price-induced fuel price increases) weighted by fuel share in generation.
- Baseline (BAU) case: any current carbon pricing in a province is set to zero and each province is then assumed to implement a $50 per tonne carbon price applied comprehensively across fossil fuel CO2 emissions for cross-province comparison.
- Revenue calculations account for changes in the bases of provincial level fuel taxes, but not broader taxes on businesses and firms nor federal level taxes.
- Economic welfare costs calculated using extensions of standard public finance formulas, accounting for prior fuel tax distortions and netting domestic externality benefits (updated national-level estimates for Canada).
- Model simplifications and caveats:
  - No trade linkages among provinces or other countries.
  - No distinction of capital vintages.
  - Does not account for provisions for large industry that might significantly lower fiscal and environmental effectiveness of carbon pricing.
  - Key parameters (BAU projections, fuel use responsiveness) are uncertain; increasing fuel price elasticities by 50 percent would increase emissions reductions and welfare costs of carbon pricing by roughly 50 percent.

### BAU projections and baseline emissions composition (2022)
- Under BAU (zero carbon pricing in all provinces), the household/industrial sector accounts for more than half of projected CO2 emissions in 2022, mostly from natural gas.
- Power sector shares in BAU emissions:
  - More than 20 percent in Alberta and Saskatchewan (where coal use is significant).
  - Less than 2 percent in British Columbia and Quebec (where renewables are prevalent).
- Road fuels account for between 11 percent of emissions in British Columbia and 44 percent in Quebec.

### Impacts of a $50 per tonne carbon price (comparison to BAU)
- Fuel price increases (Alberta figures; largely similar across provinces):
  - Coal price increase: 126 percent.
  - Natural gas price increase: 100 percent.
  - Road fuels price increase: about 20 percent.
  - Other oil products (not subject to excise) price increase: 37 percent.
- Per unit energy price increases (Alberta):
  - Natural gas: $2.8 per gigajoule (GJ).
  - Coal: $4.8 per GJ.
- Context on road fuel price increases:
  - Pre-existing fuel taxes are about $5 per GJ, almost five times larger per GJ than for coal, so proportionate increases for road fuels are modest.
- Non-carbon externalities for road fuels:
  - Rough estimate: around $17 per GJ (principally congestion and accidents rather than local air pollution), larger than the combined fuel taxes and carbon charges; thus reductions in road fuel use yield a net economic benefit even before global climate benefits.
- Domestic air pollution benefits from reducing coal and natural gas are smaller per GJ (especially for gas) than the carbon charge; reductions from these fuels can produce a net cost despite domestic environmental benefits.

### Emissions reductions and fiscal impacts (2022)
- CO2 emissions reductions below BAU in 2022 from $50 per tonne carbon price:
  - Quebec: 16 percent reduction.
  - British Columbia and Ontario: 23 percent reduction (British Columbia and Ontario cited as 23 percent; Quebec at 16 percent).
- Nationwide context:
  - These reductions are roughly half of the nationwide emission reduction of 42 percent that would be needed if Canada’s Paris pledge (limiting emissions to 30 percent below 2005 levels) were applied in 2022.
  - Spreadsheet estimate: a CO2 price of around $170 per ton would be needed to meet the Paris pledge (noted as highly speculative).
- Carbon pricing revenue in 2022 (as percent of GDP):
  - Quebec and Ontario: around 0.5 to 1 percent of GDP.
  - Other provinces: around 2.0–2.5 percent of GDP.
  - Differences reflect differences in CO2 intensity of GDP.
  - Carbon pricing erodes revenues from pre-existing road fuel taxes, but the effect is very modest given the relatively small share of road fuels in CO2 reductions.
- Economic welfare costs of carbon pricing (approximated using trapezoids in road fuel markets with prior taxes and triangles in other fuel markets):
  - Quebec and Ontario: 0.15–0.3 percent of GDP.
  - Other, more emissions-intensive provinces: more than 0.6 percent of GDP.
  - Subtracting domestic environmental benefits reduces net welfare losses by:
    - Around one-third in Alberta and British Columbia.
    - Around one-half in Saskatchewan.
    - More than one-half in Quebec and Ontario (where road fuels, with highest external costs, account for a larger share of CO2 reductions).

### Effective carbon prices when pricing is non-uniform or fuel taxes change
- Effective carbon price must account for relative environmental effectiveness of exemptions or changes, using the share of CO2 reductions under comprehensive pricing (not BAU emission shares).
- Example: If road fuels are exempt from carbon pricing, the effective carbon price is lowered by the share of road fuels in the CO2 reductions that would have occurred under comprehensive pricing.
  - Quebec illustration: reduction in effective carbon price would be 20 percent (from Figure 4a) rather than 44 percent (from Figure 2).
- Example: converting gasoline and diesel tax changes into carbon price equivalents:
  - A 25 percent reduction in fuel taxes in 2022 would lower the effective carbon price by between only $0.5 and $1.5 per tonne of CO2 in four provinces.
  - For Quebec, the 25 percent fuel tax reduction lowers the effective carbon price by $4 per tonne.

### Incidence analysis — industry impacts
- Method:
  - National-level industry incidence calculated using 2013 input-output table for Canada disaggregating 230 sectors.
  - For each industry, potential inputs: coal, natural gas, oil, electricity.
  - Price increases for 2022 from spreadsheet; electricity increases based on population-weighted provincial average.
  - Impacts on industry output prices or unit costs calculated assuming same energy input shares and output prices for 2022 as in 2013 and full pass through of input costs into output prices.
  - Approach overstates output price increases to some extent (ignores future reductions in energy input shares and infra-marginal exemptions for large industry).
- Estimated percent increases in costs in 2022 for the 20 most affected industries (collectively 7 percent of total output):
  - Diamond mining: 9.4 percent cost increase.
  - Forestry and logging: 12.5 percent cost increase.
  - Water transportation: 23.2 percent cost increase.
- Exporter vulnerability:
  - For the 10 percent of most affected exporting industries, average cost increase due to carbon pricing in 2022 is 16.6 percent.
  - For the 32 percent of most affected exports, average cost increase is 9.9 percent.
  - For exporters as a whole, average cost increase is 5.6 percent.
- Policy response for competitiveness:
  - Federal backstop system allows large industry (facilities emitting 50,000 tonnes or more of CO2) to participate in an output-based pricing scheme: charged $50 per tonne for marginal emissions above a GHG emissions limit and receive tradeable credits if emissions are below the limit.
  - Output-based pricing imposes a substantially smaller burden on industry than direct carbon pricing (no first-order tax payment or ETS allowance rent reflected in higher product prices) but is less environmentally effective and foregoes revenue.
  - Note: proposed limit is output times 70 percent of production-weighted national average emissions intensity for the industry classification; facilities emitting between 20 and 50 kilotons of CO2 equivalent producing an activity for which an output-based standard is prescribed can opt in. Alberta has adopted output-based pricing for facilities emitting 100,000 tonnes or more; Ontario and Quebec instead provide free allowances to some industrial facilities.

### Incidence analysis — household impacts
- Data and method:
  - Budget shares from the 2009 Survey of Household Spending covering 16,758 households; households divided into consumption deciles.
  - Direct consumer surplus losses from higher household energy prices: price increases from spreadsheet multiplied by corresponding budget shares.
  - Indirect consumer surplus losses from higher prices of other consumer goods: estimated assuming full pass through using 2013 input-output table multiplied by household budget shares.
  - Budget shares and input/output ratios assumed unchanged in 2022 relative to survey/table years; approach moderately overstates incidence impacts (ignores behavioral responses and infra-marginal industry exemptions).
- Distributional results for $50 per tonne carbon price (roughly distribution neutral):
  - Burdens vary from 6.8 percent of consumption for the second decile to 7.8 percent for the sixth decile.
  - Direct burden of higher energy prices accounts for around 50–60 percent of the total burden.
  - Burdens across deciles show no clear monotonic pattern: bottom and top consumption deciles burdens are 3.3 and 3.9 percent of consumption respectively (direct burden figures).
  - Indirect burden (price increases of other consumer products) varies between about 3.2 and 3.6 percent of consumption across deciles.
  - Compensating the bottom decile for the loss in consumption would require only 5 percent of potential carbon pricing revenues (12 percent for the bottom two deciles).

### Conclusion and policy implications
- Administration, monitoring, and net costs (at least to 2022) of Canada’s carbon price floor seem manageable, though aggressive ramp-up after 2022 (to meet 2030 Paris pledge) is questionable and depends partly on mitigation actions in other countries, especially the United States.
- Canada’s carbon price floor could serve as a prototype for a coalition of large emitters complementing the Paris process:
  - Case for a price floor is more compelling at the country group level due to heterogeneity in fiscal needs, domestic environmental benefits, and political acceptability.
  - Enforcement (deterring countries from reneging on carbon pricing) is the key challenge since no supranational authority can impose pricing on non-compliant countries.
  - Article 6.2 of the Paris Agreement (recognizing internationally traded mitigation units) provides a potential vehicle: countries with less stringent NDCs can sell excess mitigation units at the floor price; countries with more stringent NDCs can purchase mitigation units at the floor price to meet mitigation requirements at lower cost.
- Caveats noted:
  - Some provinces may still negotiate implementation details with the federal government.
  - Canada lacks climate governance infrastructure (national stocktaking and carbon budgeting processes), and coordinated policies across governments and industry are not yet agreed.
  - Challenges exist in implementing abatement measures consistently across jurisdictions.

*Source: wp1842 - 1.25 percent for zero-carbon generation, and 0.75 percent in other sectors), and (iv) future fuel (IMF working paper content provided).*

### 04. Nicholas Institute, Duke University, Durham, NC.

### 04. Nicholas Institute, Duke University, Durham, NC.

### Sources and data notes
- Key data sources cited: ECCC (2017b), NEB (2016), UNFCCC (2016), US EPA (2014), US IAWG (2016), WBG (2017), and other working papers and reports listed in the source content.
- Note: Figures at the end of the bars indicate GHG emissions per CAN $1,000 of GDP. GHG emissions from Canada’s three territories were 2 million tonnes.

### Figure 1 — Sources of GHGs by Province, 2014
- Source: ECCC (2017b), Table S4, NEB (2016).
- Note on presentation: Figures at the end of the bars indicate GHG emissions per CAN $1,000 of GDP. GHG emissions from Canada’s three territories were 2 million tonnes.

### Figure 2 — Projected CO2 Shares with No Carbon Pricing, 2022
- Source: See text.
- Provinces listed in figure: Alberta, Ontario, Quebec, Saskatchewan, Br. Columbia, Manitoba, Nova Scotia, New Brunswick, Newf. & Lab., Price Edward Is.
- Numeric labels shown in figure: .77, .39, .33, .25, 1.05, .21, .32, .44, .32, .23
- Chart axis label: GHGs, mn tonnes CO2 equivalent
- Share categories illustrated: Share of fossil fuel CO2 emissions by source (coal--power, gas--power, gasolinedieselgas--H/Ioil--H/Icoal--H/I, roadfuels, household/industry, power)
- Percent axis displayed: 0%10%20%30%40%50%60%70%80%90%100%

### Figure 3 — Fuel Prices, Taxes and Externalities for Alberta, 2022
- Source: See text.
- Note: Figures are the same as above for other provinces aside from the prior road fuel taxes. The prior tax refers only to the provincial excise (not general sales tax which raises the price of consumer products in general).
- Axis units: CAN$/GJ
- Chart components indicated: air pollution, other external costs, pre-tax price, prior tax, carbon charge

### Figure 4 — Impacts of $50 Carbon Price, 2022
- Source: See text.
- Note: The carbon price applies comprehensively across fossil fuel emissions with no special provisions (e.g., for trade-sensitive sectors) and impacts are relative to a baseline with no carbon pricing. Welfare impacts do not account for global climate benefits or linkages with the broader fiscal system (e.g., from recycling revenue).
- Panel (a) CO2 Reductions:
  - Reduction categories: coal--power, gas--power, gasoline, diesel, gas--H/I, oil--H/I, coal--H/I, road, fuels, household/industry, power
  - Percent reduction scale labels visible: 00.511.522.53
  - Provinces shown: Alberta, Br. Columbia, Ontario, Quebec, Saskatchewan
- Panel (b) Revenue:
  - Revenue metrics shown: Revenue, % GDP; net revenue; loss of fuel tax revenue
  - Provinces shown: Alberta, Br. Columbia, Ontario, Quebec, Saskatchewan
- Panel (c) Welfare Costs:
  - Welfare metrics and scales displayed: Welfare costs and net costs, % GDP; welfare cost exc. dom. envir. benefits; welfare cost net of dom. envir. benefits
  - Vertical axis tick values shown: 0, 0.1, 0.2, 0.3, 0.4, 0.5, 0.6, 0.7, 0.8
  - $ per ton CO2 axis tick values shown: 0, 1, 2, 3, 4, 5

### Figure 5 — Reduction in Effective Carbon Price from 25 percent Cut in Fuel Taxes, 2022
- Source: See text.
- Provinces shown: Alberta, Br. Columbia, Ontario, Quebec, Saskatchewan
- Axes and tick marks illustrated (no additional numeric values provided in text).

### Figure 6 — Impacts of $50 Carbon Price on Industry Costs, 2022
- Source: See text.
- Panel (a) Percent Cost Increases for Most Vulnerable Industries:
  - Note: Panel (a) shows 20 industries that incur highest cost increases.
- Panel (b) Cumulative Average Costs Increases for Exporting Industries.
- No numeric table values provided in the text excerpt beyond panel descriptions.

### Figure 7 — Total Burden of $50 Carbon Price on Household Consumption Deciles, 2022
- Source: See text.
- Metric: Percent of Household Consumption
- Note: Households are grouped into deciles per their total consumption as reported in the 2009 Survey of Household Spending, where the first and tenth deciles are the lowest and highest consumption groups respectively.

### Table 1 — NDCs for the Paris Agreement, G20 Countries
- Columns: Country | Mitigation Pledge: Reduce... | 2014 Share Global CO2 | Tons CO2/US$mn GDP | Tons CO2/ capita
- Rows:
  - Argentina — GHGs 15% below BAU in 2030 — 0.6 — 0.39 — 4.7
  - Australia — GHGs 26–28% below 2005 by 2030 — 1.0 — 0.25 — 15.4
  - Brazil — GHGs 37% below 2005 by 2025 — 1.5 — 0.22 — 2.6
  - Canada — GHGs 30% below 2005 by 2030 — 1.5 — 0.30 — 15.1
  - China — CO2/GDP 60–65% below 2005 by 2030 — 28.5 — 0.98 — 7.5
  - France — GHGs 40% below 1990 by 2030 — 0.8 — 0.11 — 4.6
  - Germany — GHGs 40% below 1990 by 2030 — 2.0 — 0.19 — 8.9
  - India — GHG/GDP 33–35% below 2005 by 2030 — 6.2 — 1.10 — 1.7
  - Indonesia — GHGs 29% below BAU in 2030 — 1.3 — 0.52 — 1.8
  - Italy — GHGs 40% below 1990 by 2030 — 0.9 — 0.15 — 5.3
  - Japan — GHGs 25% below 2005 by 2030 — 3.4 — 0.25 — 9.5
  - Korea — GHGs 37% below BAU in 2030 — 1.6 — 0.42 — 11.6
  - Mexico — GHGs 25% below BAU in 2030 — 1.3 — 0.37 — 3.9
  - Russia — GHGs 25–30% below 1990 by 2030 — 4.7 — 0.83 — 11.9
  - South Arabia — GHGs 130 mn tons below BAU by 2030 — 1.7 — 0.79 — 19.5
  - South Africa — GHGs 398–614 mn tons in 2025 and 2030 — 1.4 — 1.40 — 9.0
  - Turkey — GHGs up to 21% below BAU by 2030 — 1.0 — 0.37 — 4.5
  - United Kingdom — GHGs 40% below 1990 by 2030 — 1.2 — 0.14 — 6.5
  - United States — GHGs 26–28% below 2005 by 2025 — 14.5 — 0.30 — 16.5
- Source note (as provided in table): UNFCCC (2016), https://data.worldbank.org/indicator.
- Table note (as provided): BAU denotes business as usual with no new mitigation measures. Some countries specify both conditional (contingent on external finance) and unconditional (not contingent) pledges—in these cases the conditional pledges are included above. The United States announced its withdrawal from the Paris Agreement in May 2017.

*Content extracted from wp1842 - 04. Nicholas Institute, Duke University, Durham, NC.*

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_Source: https://www.imf.org/-/media/files/publications/wp/2018/wp1842.pdf_