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You’ll pay for cap and trade, economists say

Earlier this week, more than 230 academic economists released an open letter on climate change policy. While the letter received a bit of notice in the media, some key points have been lost.

The letter says we need to put a price on carbon to reduce climate-changing greenhouse gas emissions. But it also talks about the economic consequences of different approaches to pricing carbon.

The letter, which was signed by some big economic names, including current and past presidents of the Canadian Economics Association, holders of Canada research chairs and members of the Order of Canada, also warns that any effective policy will have costs for consumers.

“Some voters seem to think that policies like cap and trade, which apply directly to producers, have less impact on the prices they face than carbon taxes, where the impact can be seen immediately,” the letter states.

“In fact, voters would do better to assume that all such policies would, ultimately, affect the prices they pay. Indeed, since the goal of these policies is to change what we buy, policies applied to producers must affect the prices faced by consumers if they are to meet environmental goals.

“The argument that a policy capable of reducing carbon emissions will only affect producers is without economic merit.”

Both the New Democratic Party and the Conservatives reject a carbon tax in favour of cap and trade, although the Conservative system is less stringent than the NDP’s. The Liberals and Greens are promising a carbon tax.

The letter says a well-designed carbon tax “provides investors with a degree of certainty that is good for business, and allows consumers to make adjustments knowing what is coming.”

Cap and trade “provides certainty on the quantity of carbon emitted, but not on the price of carbon and can be a highly complex policy to implement.”

The letter doesn’t comment directly on which parties offer the best carbon programs. A spokesman for the economists said they want to clarify debate, not influence the election.

Tom Barrett is a contributing editor at The Tyee.

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