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Question 1 (0.5 points) Question 2 A. B. Reading Assignment: Articles (1 mark) [Ch. 11] Read the four articles below. Circle (choose) the correct answer for C-F. For Blanks A and B, you can choose the words from the list below and ll in each blank: 1. Command and control II. Carbon tax III. Carbon quota IV. Market-based Case Study: Climate Policy in Canada Climate policies are often the subject of considerable political debate. However, economists agree widely on the nature of the appropriate approach pricing carbon emissions, either through a [ A ] or cap and trade, is overwhelming viewed as the best approach. BC. is often identied as having implemented North America's rst [ A ] in 2008 at $10 per tonne of C02 emissions. In 2018 the tax was levied at $40 per tonne, and will increase by $5 per year until 2021. Alberta actually implemented a carbon levy a year earlier, in 2007. The Alberta tax ew under the radar because it was imposed on large emitters only, and was not a broadly based levy on all consumers. Alberta switched to a broad based [ A ] in 2017; the rate in 2018 was $30 per tonne, with no further increases scheduled until 2021. Manitoba was next, imposing a [ A ] of $25 per tonne starting in September of 2018; no increases are scheduled at this time. Other Canadian provinces have adopted a cap and trade approach. Quebec was the first out of the gate in 2011. They went on to join the California cap and trade system in 2012. Ontario joined Quebec and California's cap and trade system in 2018, however the new Progressive Conservative government withdrew the province from the system and has eliminated cap and trade. Forecasts of the carbon price in Quebec are in the neighborhood of $20 per tonne over the next couple of years. Nova Scotia implemented a cap and trade system of its own in 2019, opting not to join the Ontario and Quebec tradable permits market. For its part, the federal government has indicated that it is willing to leave carbon pricing to the provinces. However, they provide a "backstop", called the Pan-Canadian Framework on Clean Growth and Climate Change. The way this backstop works is that the provinces can choose whatever type of carbon pricing system they want so long as it applies to a broad range of emissions and meets certain guidelines. Provinces that choose the [ A ] route must levy a tax at a minimum of $20 per tonne starting in 2019, and increase the tax by $10 per year to $50 per tonne in 2022. Provinces adopting a cap and trade approach must implement declining emission caps (to at least 2022) that correspond, at a minimum, to the projected emission reductions that would have resulted from applying the direct [ A ]. If provinces do not adopt their own carbon pricing policies, the federal government will impose a tax meeting the benchmark requirements, with the revenue returned to the provinces. Carbon pricing is a hot political topic (pardon the pun), and the landscape is constantly changing. As indicated above, the Progressive Conservative government in Ontario quickly eliminated the cap and trade system upon being elected. At the time of writing, the opposition party in Alberta had indicated that if they take power in 2019 they will scrap the provincial levies. As you are reading this, it may well be that the policies described above have changed. Carbon Pricing Works Canada's EcoFiscal Commission is a group of experienced, independent, policy-minded economists from across the country, seeking to broaden the discussion of ecofiscal policy reform beyond the academic sphere and into the realm of practical policy ap l'cation. The Commission has come to a strong and overwhelming conclusion carbon pricing works. Their economic analysis of the BC. [ A ], for example, indicates that the fuel efciency of the entire vehicle eet in BC. improved by 4% more than it would have in the absence of the tax, that per- capita gasoline consumption would have been between 7%-17% higher without the tax, and that overall annual emissions would have been between 5%-15% higher without a [ A ] in place. While carbon pricing is an effective way to deal with emissions, it does not come without costs. Depending on what is done with the revenues, the EcoFiscal Commission estimates that carbon prices at the above levels will lead to a reduction in annual GDP growth by from 0.02% to 0.12%. However, as discussed above, the net benet to society of internalizing the externalities are [ C positiveegative]. And So, Pipelines And so we come to pipelines, a perennial source of disagreement and controversy in Canada and elsewhere. Pipelines involve many issues spill risks, Aboriginal land claims, NIMBYism (not in my backyard), etc. However, much of the opposition to pipelines is climate related, focussing on the implications for emissions, and in a Canadian context this means oil sands. It is often argued that allowing new pipelines to proceed is inconsistent with and contradictory to other policies designed to address climate change. Let's examine this claim from an economic perspective. A ban on new pipelines can be considered a type of [ B ] approach to climate policy, whereby the government imposes (or bans) a particular approach or technology in order to lower emissions. A key question is whether banning new pipelines is a cost effective way to lower carbon emissions. Trevor Tombe, a professor at the University of Calgary argues no, not by a long shot. Without new pipelines, more oil will be shipped by rail. This is expensive, not to mention less safe and more emission intensive than pipelines, and so oil production will be lower than it otherwise would be. Moreover, without pipelines that access tidewater in Canada, prices are lower for Alberta oil. Estimates vary, but Tombe suggests that a $10 per barrel discount on Alberta oil due to pipeline constraints is a reasonable, and indeed conservative, estimate. This too will lower oil production in Alberta. But of course, for those that oppose pipelines this is exactly the point lower production means lower emissions. But this comes at a cost. A key issue here is the extent to which the oil unproduced in Alberta due to a ban on new pipelines is replaced by oil produced elsewhere. Tombe considers two scenarios. At one extreme he assumes that each barrel of Alberta oil forgone by not constructing new pipelines is not replaced at all, in which case global oil production falls barrel for barrel. Credible estimates suggest that each barrel of oil from the Alberta oil sands creates about 600 kg of "well-to- wheels" carbon emissions on average. In the highly implausible case where the reduced Alberta production is not replaced at all, he calculates that the cost of reducing carbon emissions by banning new pipelines is about $200 per tonne. In the more likely case that the reduction in oil production in Alberta is replaced elsewhere, say by increased production in Saudi Arabia, global carbon emissions decline by only 110 kg per barrel (Saudi oil has a lower "well-to-wheels" carbon footprint than Alberta oil sands), in which case he calculates the cost of reducing carbon emissions by banning new pipelines is about $ 1000 per tonne. So, the economic cost of reducing carbon emissions by banning new pipelines is somewhere between $200 and $1000 per tonne. This is well in excess of the central estimates of the social cost of carbon used by the Government of Canada, which range from about $45 per tonne currently to $75 by 2050. Moreover, compare this to the cost of reducing carbon emissions using a [ A ] or cap and trade scheme, which Tombe calculates is just over $50 per tonne, and we see that reducing emissions by blocking pipelines costs substantially more than carbon pricing. Climate change is real, and we need sensible policies to deal with it. Internalizing the extemalities by pricing carbon, through either taxes or cap and trade, is the least costly and most effective way to lower global emissions; [ B ] policies such as banning pipelines is not. Approving pipelines, subject to appropriate regulations regarding spill prevention and remediation and with due consideration to Aboriginal issues, while at the same time imposing appropriate carbon prices is a consistent policy from an economic perspective, resulting in emission reductions in the least costly manner. Case Study: Do Bridge Tolls Affect Behaviour? Economists expound the benets of tolls to deal with congested roads and bridges. However, politicians are typically not keen on making drivers pay for access to roads which they traditionally view as being "free"; good politics is not always consistent with good economics. A case in point is the Port Mann bridge, a major bridge over the Fraser River on the TransCanada highway entering Vancouver (actually Coquitlam) from Surrey. The new Port Mann bridge replaced the old bridge in 2012. In order to recover construction and operating costs the bridge was electronically tolled. The toll per crossing ranged from $3.15 for cars to $9.45 for large trucks. In 2017 the newly elected NDP government decided to eliminate the tolls on the Port Mann bridge (and the Golden Ears bridge), effective September 1, 2017. The elimination of the tolls provides an interesting opportunity to examine the impact of tolls on behavior and to determine the extent to which drivers respond to prices. Figure 11.3 shows the monthly average weekday trafc on the Port Mann bridge from 2013 to the rst three months in 2018. A marked seasonal pattern exists, with trafc volume [D peaking/falling] in the summer and then [E peaking/falling] in the winter. There was also a sizeable increase in trafc volume in 2016. But what really stands out in the gure is the impact of the elimination of the toll on September 1 2017. There was a substantial increase in trafc volume in September and for the rest of 2017, and continuing into 2018, relative to previous years when the toll was in place. Indeed, compared to the same months over 2016, which was already a historically high year in terms of volume, traffic over the Port Mann bridge increased by almost 30 percent on average after the toll was eliminated. This is a sizeable [F increase/decrease], suggesting that even relatively modest tolls can have a big impact on drivers. \fFIGURE 11.3 Monthly Average Weekday Traffic on the Port Mann Bridge The figure shows the monthly average weekday traffic on the Port Mann bridge in Vancouver from 2013 to the first three months in 2018. Bridge tolls were eliminated on September 1 2017, which has led to a substantial [F increase/decrease] in traffic volume. A: Command and control; B: Carbon tax A: Carbon tax; B: Command and Control A: Carbon quota; B: Market-based A: Market-based; B: Carbon tax A: Market-based; B: Carbon quotaQuestion 2 (0.5 points) Question 2 A. B. Reading Assignment: Articles (1 mark) [Ch. 11] Read the four articles below. Circle (choose) the correct answer for C-F. For Blanks A and B, you can choose the words from the list below and ll in each blank: I. Command and control II. Carbon tax III. Carbon quota IV. Market-based Case Study: Climate Policy in Canada Climate policies are often the subject of considerable political debate. However, economists agree widely on the nature of the appropriate approach pricing carbon emissions, either through a [ A ] or cap and trade, is overwhelming viewed as the best approach. BC. is often identied as having implemented North America's rst [ A ] in 2008 at $10 per tonne of C02 emissions. In 2018 the tax was levied at $40 per tonne, and will increase by $5 per year until 2021. Alberta actually implemented a carbon levy a year earlier, in 2007. The Alberta tax ew under the radar because it was imposed on large emitters only, and was not a broadly based levy on all consumers. Alberta switched to a broad based [ A ] in 2017; the rate in 2018 was $30 per tonne, with no further increases scheduled until 2021. Manitoba was next, imposing a [ A ] of $25 per tonne starting in September of 2018; no increases are scheduled at this time. Other Canadian provinces have adopted a cap and trade approach. Quebec was the rst out of the gate in 2011. They went on to join the California cap and trade system in 2012. Ontario joined Quebec and California's cap and trade system in 2018, however the new Progressive Conservative government withdrew the province from the system and has eliminated cap and trade. Forecasts of the carbon price in Quebec are in the neighborhood of $20 per tonne over the next couple of years. Nova Scotia implemented a cap and trade system of its own in 2019, opting not to join the Ontario and Quebec tradable permits market. For its part, the federal government has indicated that it is willing to leave carbon pricing to the provinces. However, they provide a "backstop", called the Pan-Canadian Framework on Clean Growth and Climate Change. The way this backstop works is that the provinces can choose whatever type of carbon pricing system they want so long as it applies to a broad range of emissions and meets certain guidelines. Provinces that choose the [ A ] route must levy a tax at a minimum of $20 per tonne starting in 2019, and increase the tax by $10 per year to $50 per tonne in 2022. Provinces adopting a cap and trade approach must implement declining emission caps (to at least 2022) that correspond, at a minimum, to the projected emission reductions that would have resulted from applying the direct [ A ], If provinces do not adopt their own carbon pricing policies, the federal government will impose a tax meeting the benchmark requirements, with the revenue returned to the provinces. Carbon pricing is a hot political topic (pardon the pun), and the landscape is constantly changing. As indicated above, the Progressive Conservative government in Ontario quickly eliminated the cap and trade system upon being elected. At the time of writing, the opposition party in Alberta had indicated that if they take power in 2019 they will scrap the provincial levies. As you are reading this, it may well be that the policies described above have changed. Carbon Pricing Works Canada's EcoFiscal Commission is a group of experienced, independent, policy-minded economists from across the country, seeking to broaden the discussion of ecofiscal policy reform beyond the academic sphere and into the realm of practical policy ap l'cation. The Commission has come to a strong and overwhelming conclusion carbon pricing worlks. Their economic analysis of the BC. [ A ], for example, indicates that the fuel efciency of the entire vehicle eet in BC. improved by 4% more than it would have in the absence of the tax, that per- capita gasoline consumption would have been between 7%17% higher without the tax, and that overall annual emissions would have been between 5%-15% higher without a [ A ] in place. While carbon pricing is an effective way to deal with emissions, it does not come without costs. Depending on what is done with the revenues, the EcoFiscal Commission estimates that carbon prices at the above levels will lead to a reduction in annual GDP growth by from 0.02% to 0.12%. However, as discussed above, the net benet to society of internalizing the externalities are [ C positiveegative]. And So, Pipelines And so we come to pipelines, a perennial source of disagreement and controversy in Canada and elsewhere. Pipelines involve many issues spill risks, Aboriginal land claims, NIMBYism (not in my backyard), etc. However, much of the opposition to pipelines is climate related, focussing on the implications for emissions, and in a Canadian context this means oil sands. It is often argued that allowing new pipelines to proceed is inconsistent with and contradictory to other policies designed to address climate change. Let's examine this claim from an economic perspective. A ban on new pipelines can be considered a type of [ B ] approach to climate policy, whereby the government imposes (or bans) a particular approach or technology in order to lower emissions. A key question is whether banning new pipelines is a cost effective way to lower carbon emissions. Trevor Tombe, a professor at the University of Calgary argues no, not by a long shot. Without new pipelines, more oil will be shipped by rail. This is expensive, not to mention less safe and more emission intensive than pipelines, and so oil production will be lower than it otherwise would be. Moreover, without pipelines that access tidewater in Canada, prices are lower for Alberta oil. Estimates vary, but Tombe suggests that a $10 per barrel discount on Alberta oil due to pipeline constraints is a reasonable, and indeed conservative, estimate. This too will lower oil production in Alberta. But of course, for those that oppose pipelines this is exactly the point lower production means lower emissions. But this comes at a cost. A key issue here is the extent to which the oil unproduced in Alberta due to a ban on new pipelines is replaced by oil produced elsewhere. Tombe considers two scenarios. At one extreme he assumes that each barrel of Alberta oil forgone by not constructing new pipelines is not replaced at all, in which case global oil production falls barrel for barrel. Credible estimates suggest that each barrel of oil from the Alberta oil sands creates about 600 kg of "well-to- wheels" carbon emissions on average. In the highly implausible case where the reduced Alberta production is not replaced at all, he calculates that the cost of reducing carbon emissions by banning new pipelines is about $200 per tonne. In the more likely case that the reduction in oil production in Alberta is replaced elsewhere, say by increased production in Saudi Arabia, global carbon emissions decline by only 110 kg per barrel (Saudi oil has a lower "well-to-wheels" carbon footprint than Alberta oil sands), in which case he calculates the cost of reducing carbon emissions by banning new pipelines is about $1000 per tonne. So, the economic cost of reducing carbon emissions by banning new pipelines is somewhere between $200 and $1000 per tonne. This is well in excess of the central estimates of the social cost of carbon used by the Government of Canada, which range from about $45 per tonne currently to $75 by 2050. Moreover, compare this to the cost of reducing carbon emissions using a [ A ] or cap and trade scheme, which Tombe calculates is just over $50 per tonne, and we see that reducing emissions by blocking pipelines costs substantially more than carbon pricing. Climate change is real, and we need sensible policies to deal with it. Internalizing the extemalities by pricing carbon, through either taxes or cap and trade, is the least costly and most effective way to lower global emissions; [ B ] policies such as banning pipelines is not. Approving pipelines, subject to appropriate regulations regarding spill prevention and remediation and with due consideration to Aboriginal issues, while at the same time imposing appropriate carbon prices is a consistent policy from an economic perspective, resulting in emission reductions in the least costly manner. Case Study: Do Bridge Tolls Affect Behaviour? Economists expound the benets of tolls to deal with congested roads and bridges. However, politicians are typically not keen on making drivers pay for access to roads which they traditionally view as being "free"; good politics is not always consistent with good economics. A case in point is the Port Mann bridge, a major bridge over the Fraser River on the TransCanada highway entering Vancouver (actually Coquitlam) from Surrey. The new Port Mann bridge replaced the old bridge in 2012. In order to recover construction and operating costs the bridge was electronically tolled. The toll per crossing ranged from $3.15 for cars to $9.45 for large trucks. In 2017 the newly elected NDP government decided to eliminate the tolls on the Port Mann bridge (and the Golden Ears bridge), effective September 1, 2017. The elimination of the tolls provides an interesting opportunity to examine the impact of tolls on behavior and to determine the extent to which drivers respond to prices. Figure 11.3 shows the monthly average weekday trafc on the Port Mann bridge from 2013 to the rst three months in 2018. A marked seasonal pattern exists, with trafc volume [D peaking/falling] in the summer and then [E peaking/falling] in the winter. There was also a sizeable increase in trafc volume in 2016. But what really stands out in the gure is the impact of the elimination of the toll on September 1 2017. There was a substantial increase in trafc volume in September and for the rest of 2017, and continuing into 2018, relative to previous years when the toll was in place. Indeed, compared to the same months over 2016, which was already a historically high year in terms of volume, trafc over the Port Mann bridge increased by almost 30 percent on average after the toll was eliminated. This is a sizeable [F increaseldecrease], suggesting that even relatively modest tolls can have a big impact on drivers. 160000 Chart Area 2018 Tolls not in place 140000 Tolls eliminated Sept 1 2017 130000 120000 1 10000 100000 90000 80000 January February March April May June July August 2013 -2014 2october November 2015 September December .2016 018FIGURE 11.3 Monthly Average Weekday Traffic on the Port Mann Bridge The figure shows the monthly average weekday traffic on the Port Mann bridge in Vancouver from 2013 to the first three months in 2018. Bridge tolls were eliminated on September 1 2017, which has led to a substantial [F increase/decrease] in traffic volume. OC: negative; D: falling; E falling; F: decrease OC: negative; D: peaking; E falling; F: decrease OC: negative; D: falling; E peaking; F: increase OC: posotive; D: falling; E peaking; F: increase OC: positive; D: peaking; E falling; F: increase