February 5, 2017

June 21, 2016

Ontario is leading in many climate policy areas such as renewable energy, smart grids, and the recent announcement that it intends to join the Western Climate Initiative cap-and-trade system. As part of its climate policy framework, Ontario has committed to reinvest the proceeds from its proposed cap-and-trade system, in a transparent way, back into projects that will further reduce GHG emissions and improve business competitiveness.

Traditionally, competitiveness in the context of carbon pricing is narrowly construed as the impacts on emission-intensive and trade-exposed (EITE) sectors including iron and steel, basic chemicals, lime and cement. But competitiveness affects the entire economy, and with an understanding of both its positive and negative impacts, policy-makers can make better carbon mitigation policy choices. With Ontario’s largely service and manufacturing-sector based economy, limiting competitiveness analysis to only EITE’s would miss 85% of its economy.

Starting from the Porter idea that environmental policies may foster international competitiveness by inducing technological innovation this paper looks at the export competitiveness of the European Union and how it has been effected by environmental regulation and innovation.

The policy brief examines the evidence base on how carbon pricing promotes innovation, and how that innovation in turn can promote productivity. Productivity, of course, is the Holy Grail of Canadian competitiveness. And so Canada’s ability to innovate and to become more productive goes a long way to define our future prosperity. The take-away for policy makers, as Martin makes clear, is that carbon pricing needs to be brought into any policy discussion on productivity in Canada.

In addition to investment, SP will be looking at how carbon pricing can promote innovation and productivity, and how carbon pricing intersects with our trade policy and interests. Other policy briefs, on subjects ranging from Ontario’s Feed-in-Tariff program and institutional models for carbon revenue management are also being developed. Eventually, the Policy Brief format will be extended out to include other areas of interest, including sustainable communities, water, and ecosystems services.

Key Messages:

There has been, for some time, a large degree of consensus over the fact that the best long-term policy to reduce the greenhouse gas emissions causing climate change, at the least overall cost to the economy, is one that would place a price on those emissions. Globally, "green" public spending has exploded and a "low carbon investment gap" has opened up, and the absence of a national Canadian carbon policy is becoming a competitive disadvantage for Canada.