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Martin Laplante

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Wed, 08 Oct 2008

Science and Economics of Climate Change

Two different large groups of mainstream Canadian experts have come out with open letters on climate change, urging our political leaders to act and suggesting specific policies.

A group of over 120 science professors warn that "Global warming is without a doubt the defining issue of our time, and we cannot let economic turmoil in the USA dissuade us from addressing the problem." Their letter details how on several recent occasions "Canada has obstructed international efforts designed to develop policies to deal with global warming." The signatories are top climate experts in the country, including many who were lead authors or major contributors to the reports of the Intergovernmental Panel on Climate Change. Some of them worry that criticizing the government could jeopardize their research funding.

The economists, 230 economics professors including every professor I could think of that is in the field of energy economics, recommend a carbon tax in particular and explain why it is better than cap and trade. Here is their letter:

Open Letter to leaders of Canada's federal political parties

Release 00h01 (EST) Tuesday Oct. 7, 2008

OTTAWA, Oct. 6 - More than 230 economists teaching in Canadian universities have signed an open letter to federal political leaders calling for economically coherent action on climate change. Among the signatories are some of Canada's top economists, including current and past presidents of the Canadian Economics Association, and holders of Canada Research Chairs and the Order of Canada.

"Economists disagree on many things, but on what needs to be done about climate change there is considerable agreement," explains Ross Finnie, one of the three authors of the letter and an Associate Professor in the Graduate School of Public and International Affairs at the University of Ottawa. "The signatories come from a wide range of political persuasions and will vote for different parties, but we all agree that effective policies for addressing climate change must be based on sound economic principles. Our goal is to help inform public debate on climate change at a time when people are really paying attention to this issue – during the federal election. Our hope is that whichever party forms the next government will act on these principles."

"It's remarkable how much agreement there is among economists on this key point – the best climate change policy is to put a price on carbon," says Nancy Olewiler, another of the authors and director of SFU's Public Policy Program. David Green, the third author and professor at UBC, adds "We also want people to be clear that all policies that alter carbon emissions will affect the prices they face – some more than others."

The signatories agree on these 10 principles:

 1. Canada needs to act on climate change now.
 2. Any substantive action will involve economic costs.
 3. These economic impacts cannot be an excuse for inaction.
 4. Pricing carbon is the best approach from an economic perspective.
   1. Pricing allows each business and family to choose the response that is best and most efficient for them.
   2. Pricing induces innovation.
   3. Carbon is almost certainly under-priced right now.
 5. Regulation is the most expensive way to meet a given climate change goal.
 6. A carbon tax has the advantage of providing certainty in the price of carbon.
 7. A cap and trade system provides certainty on the quantity of carbon emitted, but not on the price of carbon and can be a highly complex policy to implement.
 8. Although carbon taxes have the most obvious effects on consumers, all carbon reduction policies increase the prices individuals face.
 9. Price mechanisms can be regressive and our policy should address this.
 10. A pricing mechanism can allow other taxes to be reduced and provide an opportunity to improve the tax system.

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