Breaking it down: how carbon pricing addresses climate change

Blog - Aug. 8, 2018 - By Sara Hastings-Simon

Photo: Green Energy Futures

Pollution isn’t free. There is a real cost to the environment and our health when someone — an individual or a business — pollutes, leaving the air, water, or land less clean for everyone.

Economists tell us that putting a price on pollution will reduce emissions; but there is often a misunderstanding or lack of clarity on exactly how it achieves this.

By making polluters pay by applying a price on carbon, we can kickstart behavior change by individuals and businesses, while incentivizing innovation at the production level, which trickles down to more consumer choices for products that deliver a superior service or experience at lower carbon. A well-designed carbon price ensures that as the price increases, so do the number of options to lower your carbon footprint. And most importantly, a well-designed price makes sure no one gets left behind, and uses the revenue to offer support like rebates to consumers as they make purchases and choices that are more energy efficient along with direct transfers to low and middle income consumers to cover the average costs of the policy.

Planning ahead

As illustrated in our recent infographic series, it’s helpful to think of solutions in the near-term, mid-term, and long-term. Some of the near-term changes are the most clear. For example, individuals can save money by reducing the amount of electricity they use by making small changes. This can include switching to LED light bulbs, sealing leaks in windows and doors, using programmable thermostats, or alternatives to solo car travel for some of their trips, like carpooling, or if they’re in cities, cycling, walking or taking transit. But these behavior change nudges that carbon pricing provides doesn’t end there. In fact some of the bigger potential savings come in the medium and longer term.

In the mid-term consumers can make different choices in their purchases. The next time they’re making a bigger appliance or vehicle purchase, they can choose more efficient fridges, washer and dryers, automobiles, or equipment to heat and cool their homes. Pricing carbon means that it will make sense to spend a little bit more on a more efficient refrigerator, or a hybrid or electric vehicle, because it saves money over the long term. Like we mentioned above, revenue from carbon pricing can be used to provide support for the purchase upfront through rebates so the total costs are lower than without a carbon price in place.

Important to note is that it isn’t just up to the individuals to make changes — a price on carbon pollution incentivizes companies to look for innovative solutions to lower emissions while delivering a superior product or experience. The price signal that a price on carbon provides means that companies of all kinds — appliance manufactures, car makers, home builders and more know that consumers will be looking for products that are more efficient and less polluting. This drives innovation that results in a better set of options for consumers to choose from — high performing buildings, cars and appliances that are lower in pollution thanks to things like better design, innovative materials, and more. Manufacturers that succeed in innovation, and designing and producing more efficient products will have the largest market share.

Real-life proof

This isn’t just economic theory — we’re seeing proof that carbon pricing works to reduce carbon pollution. Most recently California has demonstrated this, by reaching their 2020 carbon pollution reduction goal four years ahead of schedule — a reduction of 13 per cent from the 2004 peak, while the economy grew by 26 per cent in the same period — thanks in part to the cap-and-trade carbon pricing program in place. We’ve seen this closer to home too. Since implementing a carbon tax in 2008, British Columbia’s consumption of fossil fuel per capita has gone down, and the province’s economy has been one of the best performing in the country over the past decade.

A key takeaway is that the objective in pricing carbon pollution is to lower carbon pollution. A well-designed system uses revenue to find solutions to lower emissions and give individuals most options. For example, in the long-term, revenue can be used to fund rapid transit projects and cycling infrastructure. Rejecting a price on carbon pollution is walking away from a proven, cost-effective way to address climate change. Instead of thinking in short-term savings, we need to think about long-term opportunities.

A price on carbon pollution leaves the door wide open for the most innovative companies and the most creative ideas, and leaves freedom for consumers to make the choice that works best for them.


Sara Hastings-Simon

Sara Hastings-Simon is the managing director of the Pembina Institute’s clean economy program, and is based in Calgary.


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